According to the U.S. Department of Agriculture, the cost to raise a child from birth to age 18 for a middle-income, two-parent family was $226,920 as of 2011, not including college expenses. That was an increase of 40 percent over the previous 10 years. To help offset these expenses, the Internal Revenue Service allows you to claim a tax credit of up to $1,000 for each child if you qualify. This benefit is only for children age 16 and under — you lose the benefit completely when your child turns 17.
Child Tax Credit
The child tax credit is nonrefundable, meaning it can be applied only toward taxes owed for the year. If you have only a $500 tax liability for the year, you will receive only $500 of the credit against that liability and will not receive the additional $500 in a refund.
Qualifying for the Credit
Other than the child being under the age of 17, you must meet other requirements to claim the child tax credit. The child must be related to you by blood or marriage, or be adopted. Foster children are also eligible for the credit. The child must provide less than 50 percent of his own support, and you must claim the child as a dependent. To claim the full credit, your adjusted gross income must be less than $110,000 as of 2012 if filing jointly, $55,000 if you are married filing separately, and $75,000 for all other taxpayers. The credit phases out above those income levels.
Additional Child Tax Credit
If you are unable to claim the entire child tax credit because your total credit exceeds the amount of your tax liability for the year, you may be eligible for the additional child tax credit. This is particularly true if you are a lower-income tax filer. The additional child tax credit is a refundable credit, which means that it can trigger a tax refund if the credit amount exceeds your tax liability. Complete Form 8812, Additional Child Tax Credit, to see if you are eligible for this credit.
When your child reaches age 17, college expenses may be on your mind. Be sure to familiarize yourself with the various tax benefits that are available to you for tuition expenses. The American opportunity tax credit offers up to $2,500 in tax credits for higher education expenses, and the lifetime learning credit can also help offset expenses. In addition, interest deductions are available for interest paid on student loans for higher education.
- children image by Mat Hayward from Fotolia.com