Children who are your dependents entitle you to claim dependent exemptions, which are a tax deductions you subtract from your gross income. In addition, you may be able to claim one or more tax credits for dependent children. Unlike the dependent exemption, credits are subtracted directly from your tax liability, so they reduce the amount of tax you owe on a dollar-for-dollar basis.
Child Tax Credit
You may be able to claim the Child Tax Credit for each dependent child who is less than 17 years old at the end of the year. The credit is for $1,000 or the amount of your tax liability, whichever is less. However, if your tax liability is less than the Child Tax Credit, you may be able to claim the Additional Child Tax Credit. The amount of the credit is subject to income limits and starts to phase out when your adjusted gross income reaches $110,000 if you are married and filing jointly. When you are married and file separately, phase-out starts at $55,000. The limit is $75,000 for other filing statuses.
When you and your spouse must pay childcare expenses so you can work or look for a job, you can claim the Child and Dependent Care Credit for dependent children who are under age 13 or incapacitated. You, and your spouse if you are married, must have earned income. The credit is figured as a percentage of your childcare expenses up to a maximum of $1,050 for one qualifying child, or $2,100 for two or more children.
If you have a dependent child who is in college, you may be able to claim the American Opportunity Credit or the Lifetime Learning Credit to help pay for qualified education expenses. You may claim only one of these credits per child per year. The American Opportunity Credit is for up to $2,500 and may be claimed for up to four academic years, but is due to expire after the 2012 academic year. IRS rules start reducing, or phasing out, the credit amount when your modified adjusted gross income reaches $80,000 for single filers or $160,000 for a married couple filing a joint return. The Lifetime Learning Credit may be claimed for any number of years and can be up to $2,000. As of 2012, the credit amount started to phase out when modified AGI reached $104,000 if you file a joint return or $52,000 if you file as single.
The IRS has a uniform definition of a qualifying child to determine eligibility for tax credits as well as the dependent exemption. Except for specific rules, such as age requirements, the IRS definition of a qualifying child applies to all of these tax benefits. A qualifying child must reside with you for one-half of the year and cannot provide more than half of his own income. Children must be under age 19, except for full-time students who must be less than 24. Children with disabilities may be claimed at any age. Provided these qualifications are satisfied, children other than your own may also qualify if they are adopted, stepchildren or foster children. Siblings and descendents of any of these may also qualify.
- Internal Revenue Service: In 2012, Many Tax Benefits Increase Due to Inflation Adjustments
- Internal Revenue Service: A “Qualifying Child”
- Internal Revenue Service: Ten Facts about the Child Tax Credit
- Internal Revenue Service: Topic 602 – Child and Dependent Care Credit
- Internal Revenue Service: Tax Benefits for Education Information Center