GOBankingRates

3 Tax Credits Every Parent Should Know

AzmanL / Getty Images

When you’re a parent, every little bit of credit helps at tax time. If you have dependents and meet certain conditions set forth by the Internal Revenue Service (IRS), you might be eligible for three tax credits that can potentially save you up to several thousand dollars. Qualifying for the Child Tax Credit, the Child and Dependent Care Credit or the Earned Income Tax credit, could mean a refund that helps enrich your family’s life.

Check Out: Don’t Miss Out on Nominating Your Favorite Small Business To Be Featured on GOBankingRates — Ends May 31

Keep reading for money-saving tax tips for parents.

What Is the Child Tax Credit and How Do You Qualify?

The Child Tax Credit is a financial credit given to those with qualifying dependents under age 17, intended to offset the costs of raising and caring for a child. If you’re unsure if you qualify, the IRS spells out exactly how to qualify for the Child Tax Credit on its website and provides an interactive tax assistant to help you determine whether you are eligible.

Make Your Money Work

Take Advantage: 15 Commonly Missed Tax Deductions

As a parent dealing with the cost of ballet recitals, trumpet lessons, school supplies and a hefty amount of superhero-shaped mac and cheese, a credit probably sounds great to you. Your next question is likely “How much is the Child Tax Credit?” The answer is that it can vary each year, but it runs up to $2,000 per qualifying child for 2020 income tax returns. Up to $1,400 of the Child Tax Credit is refundable per qualifying child under the Additional Child Tax Credit. To make things even better, you could still receive these refundable tax credits even if you don’t owe any 2020 taxes.

It’s also important to note that the IRS imposes a Child Tax Credit income limit, and it’s not uncommon that the Child Tax Credit changes year to year in terms of income level or credit amount. For 2020, the credit starts phasing out for those with $200,000 of modified adjusted gross income for individuals or $400,000 for married couples who file joint tax returns.

Up Next: 8 Best Tax Tips for Single Parents

Make Your Money Work

Alternative: The Credit for Other Dependents

If you cannot claim your dependents for the Child Tax Credit, they may still qualify for a non-refundable tax credit of up to $500, known as the Credit for Other Dependents. They must be U.S. citizens, U.S. nationals or aliens with U.S. residency to be eligible for the Credit for Other Dependents.

Note that the IRS requires children to have a social security number that was issued by the Social Security Administration before your tax return will qualify for the Child Tax Credit or Additional Child Tax Credit.

Do You Know: Can You Deduct Your Child Support Payments?

What Is the Child and Dependent Care Credit and How Do You Qualify?

If you have a child or dependent who needs care while you’re out working or looking for employment, the Child and Dependent Care Credit may ease some of the financial burdens. Your spouse is also eligible if you file joint tax returns. The IRS has requirements for those receiving care, however. They can be any of the following:

Make Your Money Work

Keep in mind that the IRS imposes a limit of $3,000 in expenses to calculate this credit for a single qualifying individual and $6,000 for two or more qualifying individuals. You won’t receive the credit if you or your spouse are the individual’s caretaker or if the caretaker doesn’t meet the specific criteria provided by the IRS.

Learn: Do You Have To File Taxes? 3 Times You Can Skip It

What Is the Earned Income Tax Credit and How Do You Qualify?

If you don’t have much income, you may be eligible for the Earned Income Tax Credit (EITC), also known as the Earned Income Credit (EIC), which lowers your owed taxes and sometimes provides you with a refund. You must file a tax return to get the EITC, even if you had no income or are otherwise not required to file one. Below are some of the other major requirements:

Make Your Money Work

Discover: What Are the 2020-2021 Federal Tax Brackets and Tax Rates?

In addition to meeting those criteria, you must either have a qualifying child or meet these child tax credit eligibility qualifications:

What Is a Qualifying Child?

Now, this begs the question: What is a qualifying child, anyway? Fortunately, the IRS lays out four areas of child tax credit requirements that you must meet to receive the EITC: age, relationship, residency and joint return. Each of those areas has its own specifications:

Age

Make Your Money Work

Relationship

Residency

Take a Look: 8 New or Improved Tax Credits and Breaks for Your 2020 Return

Joint Return Test

If you prefer not to calculate the EIC amount on your own, the good news is that the IRS will determine it for you if you follow the instructions on your Form 1040. To determine it yourself, use the Earned Income Credit Worksheet in the Form 1040 instruction booklet and the accompanying table.

More From GOBankingRates

Last updated: April 30, 2021