In the United States most children in the household under the age of 16 are eligible to be included in the calculation for the child tax credit. This is a direct credit to the tax payer that is set at one thousand dollars per eligible child. However, there are additional tax credits and possible deductions that you and your family may be eligible for based on meeting the specific requirements for these programs.
There are two different types of programs that allow parents to use their children on their taxes to reduce the amount they are paying to the government. A tax credit, typically the standard child tax credit, acts to reduce the amount of taxes owed. A deduction due to the children, which can include tuition or medical costs, allows you to reduce the amount of your taxable income, but cannot be used to increase any refunds you may have coming your way.
Children that are not biological children but are living in the home under your care may be eligible to be used as deductions or credits provided they are only claimed on one tax return. This can include grandchildren being raised by grandparents, children that are adopted or children that have been court ordered to be placed in your home. Often divorced couples where the children live fifty percent with each parent alternate years to claim the children or work out some type of settlement with regards to claiming the children as deductions or credits.
Most of the programs designed to help parents deal with taxes and provide additional support for the family are dependent in some fashion on the income level of the household. Lower income families have more access to tax credits, which can actually boost a return or be used to decrease any tax owing at the end of the year. Higher income families may be eligible for more deductions since they are more likely to be contributing larger amounts of money to the children, particularly in tuition and educational fees. Couples filing jointly or single parents have different cut off levels for taxable deductions when it comes to education, tuition and related fees.
Student loans may also be eligible for a tax deduction. This only occurs if the loans are from a qualifying financial institute. The children have to be attending a degree program on at least a part time basis for the parent or parents to be able to take this deduction. Typically high income families, those making more than $120,000 to $150,000 will not be able to claim this deduction, but lower income families can. This limit changes each year and the tax software used will notify you if you are eligible for these deductions.
Taxes that are considered to be credits, and therefore have more influence on your tax bottom line, are things that you have paid for throughout the year. These credits can include the child and dependent care credit if the child is under the age of 13 and goes to a daycare or has any type of child care expenses. This is a great advantage to low and middle income earners with younger children. As with the deductions this fades out when income levels increase.
Families that adopt children in the specific tax year are also eligible for a credit on their taxes. This credit is open to all parents and is a substantial amount. However, as with all credits, very high income earning families will start to see reduced benefits if their combined income is over a specific amount as determined by the IRS. Parents that adopt a special needs child automatically are eligible for the full credit amount provided they do not exceed the phase out level in their combined income.