Tax Breaks Every Parent Should Know About: Child Tax Credit & More!

Raising kids is rewarding but expensive. Between food, childcare, and education, the costs add up quickly. The good news? The IRS offers several tax breaks that can help parents reduce their tax bills and keep more money in their pockets.

In this post, we’ll break down some of the most important tax benefits for parents, including the Child Tax Credit, Earned Income Tax Credit, Dependent Care Credit, and more. Let’s dive in and make sure you’re not leaving money on the table!

1. The Child Tax Credit (CTC)

One of the most well-known tax benefits for parents is the Child Tax Credit (CTC). This credit helps families by reducing the amount of tax they owe—potentially down to zero.

How It Works:

• For the 2023 tax year, eligible families can receive up to $2,000 per child under the age of 17.

• Up to $1,600 of the credit is refundable, meaning if your tax liability is low, you may still get money back.

• The credit phases out for higher-income earners, with reductions beginning at $200,000 for single filers and $400,000 for married couples filing jointly.

This credit can significantly lower your tax bill or even increase your refund, so if you have children under 17, be sure to claim it!

2. The Earned Income Tax Credit (EITC)

The Earned Income Tax Credit (EITC) is designed to support working families with low to moderate incomes. It provides a substantial refund to eligible taxpayers, especially those with children.

How It Works:

• The EITC amount depends on income, filing status, and number of qualifying children.

• For the 2023 tax year, families with three or more qualifying children can receive up to $7,430!

• The credit is fully refundable, meaning if the credit is more than your tax owed, you’ll receive the difference as a refund.

Who Qualifies?

To be eligible, you must:
✔ Have earned income from wages, self-employment, or certain benefits.
✔ Meet income limits (varies based on filing status and number of children).
✔ Have a valid Social Security number.

Even if you had little or no tax liability, you should check your eligibility because this credit can put thousands back into your pocket!

3. The Child and Dependent Care Credit

If you pay for childcare so you can work or look for work, you may qualify for the Child and Dependent Care Credit.

How It Works:

• You can claim up to 35% of qualifying childcare expenses.

• The maximum eligible expenses are $3,000 for one child and $6,000 for two or more children.

• Unlike the Child Tax Credit, this credit is non-refundable, meaning it only reduces your tax bill (but won’t give you money back if you don’t owe taxes).

Eligible Expenses Include:

✔ Daycare, preschool, or nanny services.
✔ Before- and after-school programs.
✔ Summer day camps (overnight camps don’t qualify).

Make sure to keep records of your childcare expenses, including receipts and the provider’s tax ID number!

4. The Adoption Tax Credit

For families who have adopted a child, the IRS offers the Adoption Tax Credit to help offset the costs.

How It Works:

• The maximum credit for 2023 is $15,950 per child.

• It applies to qualified adoption expenses such as court costs, legal fees, travel, and adoption agency fees.

• This credit is non-refundable, but any unused amount can be carried forward for up to five years.

If you’re in the process of adopting or recently completed an adoption, this credit can help ease the financial burden.

5. The Education Tax Benefits for Parents

Even if your child isn’t in college yet, there are tax breaks for education expenses.

529 Plans & Education Savings Accounts (ESA)

• Contributions to 529 college savings plans grow tax-free.

• Funds can be used for K-12 tuition (up to $10,000 per year) or higher education expenses.

• Some states offer tax deductions or credits for 529 contributions.

The American Opportunity Tax Credit (AOTC)

• If your child is in college, you may be eligible for up to $2,500 per student per year.

• This credit applies to tuition, books, and school-related fees.

• $1,000 of this credit is refundable, so even if you owe no tax, you can still get money back!

The Lifetime Learning Credit (LLC)

• This credit provides up to $2,000 per tax return for higher education expenses.

• Unlike the AOTC, there’s no limit on the number of years you can claim it.

Both credits cannot be claimed for the same student in the same year, so be strategic in how you apply them!

6. Tax-Advantaged Savings for Parents

Parents can take advantage of special savings accounts with tax benefits:

Health Savings Accounts (HSA) & Flexible Spending Accounts (FSA)

• If you have a high-deductible health plan (HDHP), an HSA lets you save pre-tax dollars for medical expenses.

• FSAs allow you to set aside pre-tax money for childcare or medical expenses (but funds usually expire at year-end).

Dependent Care FSA

• Employers may offer Dependent Care FSAs, allowing you to set aside up to $5,000 per year tax-free to pay for childcare.

These savings accounts lower taxable income while covering necessary expenses!

7. The Head of Household Filing Status

If you're a single parent, you might qualify for the Head of Household filing status, which provides:
✔ A higher standard deduction ($20,800 for 2023 vs. $13,850 for single filers).
✔ Lower tax rates than filing as Single.
✔ Eligibility for various credits and deductions.

To qualify, you must:
✔ Be unmarried or considered unmarried on the last day of the year.
✔ Pay more than half the household expenses.
✔ Have a qualifying dependent living with you for at least half the year.

This filing status can reduce your tax bill significantly, so be sure to claim it if eligible!

Final Tips to Maximize Your Tax Breaks

✔ File Early & Electronically – This ensures you get your refund faster and avoids IRS delays.
✔ Keep Good Records – Save receipts, childcare provider info, and education expense records.
✔ Use a Tax Professional (If Needed) – If your tax situation is complex, an expert can help maximize your credits.
✔ Consider Adjusting Withholding – If you’re getting a large refund, you may want to adjust your W-4 to have more take-home pay throughout the year.

Bottom Line: Don’t Leave Money on the Table!

Taxes can be confusing, but these tax credits and deductions can put thousands of dollars back in your pocket. Whether you’re saving for childcare, education, or everyday expenses, taking advantage of these benefits can help make parenting a little less financially stressful.

Have questions? Need help filing your taxes? Let’s chat! I specialize in helping parents navigate tax breaks and maximize their refunds.