Child and Child Care Credit: Maximize Your Tax Benefits

Keep In Mind Credits for Families

The April 15 deadline to file tax returns is not the only time parents should think about taxes and credits. But, surprisingly, child tax credits, child and dependent care credits, and earned income tax credits intended to ease the tax obligations of families are sometimes forgotten or overlooked. Don't be one of them. Here are credits to keep in mind when preparing your income tax return.

Child Tax Credit

This credit can be as much as $1,000 per qualifying child, defined as your son, daughter, stepchild, grandchild or adopted child who is a resident of the U.S. or a legal citizen. The child must also qualify as your dependent. If you provided more than one-half of their annual support and no one else claims them as a dependent, and they are under the age of 17, then they qualify as a dependent. The credit is limited if your modified adjusted gross income is above a certain amount. The figure at which this phase-out begins varies depending on your filing status. Check out the IRS' Frequently Asked Tax Questions and Answers concerning child tax credit or other resources listed for more information.

Child and Dependent Care Credit

If you paid someone to care for your children or a dependent as defined above so that you could work, you can claim this credit to reduce your overall federal income tax. Qualifying expenses are typically fees/charges paid to either a day care center, preschool center, or an individual. The credit is available for the care of a child under the age of 13 and who is classified as your dependent. The credit can also be claimed for the care of a spouse or dependent of any age who is physically or mentally incapable of self-care.

The credit is a percentage of the amount of expenses paid over the year for child care, and can range from 20-35 percent depending on the adjusted gross income. The dollar amounts allowed must be reduced by the amount of any dependent care benefits provided by your employer that you excluded from your salary income.

Earned Income Tax Credit

This credit is designed for low-income workers who could benefit from the credit to help feed their families, improve their standard of living through improved housing, invest in education, utilize transportation to get to work, or save for the future. It's also designed to offset the burden of Social Security taxes and to provide an incentive to work.

Calculating this credit is complicated, and the IRS can assist you with it when it receives your return, if needed. To qualify, taxpayers must meet certain requirements and file a tax return, even if they did not earn enough money to be obligated to file. The EITC has no effect on certain welfare benefits. In most cases, EITC payments will not be used to determine eligibility for Medicaid, Supplemental Security Income (SSI), food stamps, low-income housing or most Temporary Assistance for Needy Families (TANF) payments.

It is always recommended to consult with a tax advisor for more information. In addition, the Internal Revenue Service provides some resources for families as well to determine eligibility. The article, "Are You Eligible For Any Of These Tax Credits?" helps families navigate through tax credits. Above all, families should not only be concerned with credits and eligibility around tax time, but should be aware of the credits and eligibility guidelines year-round so that they can properly plan for their family financially.