You recently brought a new child into the world. If you haven’t already, you’ll start to understand that kids are pricey once the initial pleasure subsides. Thankfully, the tax code offers new parents several tax benefits, some of which were outlined in a recent IRS blog article. Here are four illustrations.
Child Tax Credit
Children under the age of 17 who are dependent on their parents are eligible for the Child Tax Credit, a partially redeemable tax credit. If the Modified Adjusted Gross Income (MAGI) equals $200,000 for individuals filing alone or $400,000 for joint filers, the Kid Tax Credit (CTC) equals $2,000 for each qualified kid for 2023. For each $1,000 over the cap, the maximum refundable part of $1,600 in 2023 is decreased by $50. Note: Recent CTC amendments by legislation have lapsed but could be renewed.
Dependent Care Credit
To allow you (& your partner, if you’re married) to work, you can claim a dependent care credit for the expenditures of caring for children under the age of 13. Parents with an adjusted gross income (AGI) over $43,000 are eligible for a 20% credit on the first $3,000 in approved expenses for one kid or the first $6,000 in acceptable expenses for two or more children, with a maximum credit amount of $600 or $1,200, respectively. Recently, the dependent care credit had legislative improvements, like the CTC, although they may be reinstated.
Adoption Credit
Parents can register for a maximum credit amount of about $15,950 for approved adoption-related expenses incurred in 2023. A youngster who is younger than 18 or unable of caring for themselves physically or mentally is considered eligible. For those who pay tax with a MAGI of more than $239,230, the credit gradually phases out. Your credit is 0 whenever your MAGI exceeds $279,230. The credit is often accessible in the year when qualifying costs are paid or incurred, please take note. The credit may be used in the next year, though, if the adoption isn’t completed by the year’s end.
Credits For Higher Education
Even though college is still a ways ahead, there may be tax credits in the future. Parents typically qualify for two college credits, based on phase-outs. For the initial four years of study for every student, the American Opportunity Tax Credit (AOTC) is offered at a maximum annual amount of $2,500. For instance, $5,000 is the maximum AOTC if you are simultaneously supporting two college-age children. The highest Lifetime Learning Credit (LLC) is about $2,000 in contrast. In contrast to the AOTC, it applies to every taxpayer. Therefore, the largest credit remains to be $2,000 for two students. On the other hand, the LLC is accessible for all study years, not only the first four.
Based on MAGI, there will be a phase-out for each credit. Most importantly, you can typically only select one credit from the available options for a given tax year. These are the only four tax benefits that parents of infants and young children may qualify for. Others might be relevant to your circumstance. Ask your qualified tax professionals for advice.
