Parents used to joke about children being “little deductions” off their taxes every April. Those little deductions have risen to some pretty significant tax breaks. You just have to know they are available. The possible deductions include the Dependent Exemption, the Child Tax Credit, the Additional Child Tax Credit, the Dependent Care Tax Credit, and the Earned Income Tax Credit. That’s a lot of deductions.
1. The Dependent Exemption, good on your 2010 tax return for $3,650 off your taxable income for each child in the family who qualifies as a dependent, means the total income you pay taxes on is reduced by $3,650 for each child.
2. The Child Tax Credit, good on your 2010 tax return for $1,000 for every dependent child under the age of 17, is even better than an exemption because it means the actual amount of tax you owe is reduced by $1000 for each child.
3. The Additional Child Tax Credit is an additional credit some parents qualify for. If this applies to you, it means you are entitled to an additional credit. It may also give you a refund.
4. The Dependent Care Tax Credit helps parents with children under the age of 13 cover some child-care expenses. You can claim a credit equal to 20 percent or more of child-care expenses up to $3,000 per child. For example, if you claim $3,000 for one child in child-care costs for the year, you would be entitled to a credit of at least $600. If you claim $3000 for two children, you would be entitled to a credit of $1200.
5. The Earned Income Tax Credit is a tax credit for parents who work and have low wages. It reduces the amount of tax you owe and may even give you a refund.
Information for all of these credits is available in publications from the Internal Revenue Service, which we have listed below. Your Family Financial Education Foundation counselor can also help you find this information.
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Dependent Exemption, Publication 501
Child Tax Credit, Publication 972
Additional Child Tax Credit, Publication 972
Dependent Care Tax Credit, Publication 503
Earned Income Tax Credit, Publication 596
All of these publications are available online at irs.gov or you may call 1-800-829-3676 to request a free copy by mail.