The Internal Revenue Service offers several tax breaks to the caretakers of children aimed at reducing the financial burden income taxes place on families. Tax breaks for children include a tax exemption for each dependent child, a Child Tax Credit and a credit for adoption expenses. The exact amount you stand to save on taxes for caring for a child depends on your income tax rate and the specific tax breaks that apply to you.
You can claim a tax exemption of $3,800 for yourself, your spouse if filing a joint return and for each dependent you claim. Your child is considered your dependent if he lives with you more than half the year, does not file a joint tax return, is younger than 19 or 24 if a full-time student and does not provide more than half of his own support for the year. An adult child can count as a dependent if you provide more than half of his support for the year and his gross income is less than $3,800. The exemption reduces your taxable income by $3,800, so the tax savings for claiming an exemption depends on your income tax rate. For example, if you are in the 28 percent tax bracket, the exemption saves you 28 percent of $3,800, or $1,064.
Child Tax Credit
The government offers a Child Tax Credit of up to $1,000 for each dependent child you have who is younger than 17 at the end of the year. To claim the full credit, your annual income must be less than $75,000 as an individual filer or $110,000 as a joint filer. Tax credits directly reduce your total income tax bill, so the $1,000 credit saves you $1,000 in taxes for each eligible child.
Child Care Expenses
If you incur child care expenses so you can work or look for work, you may be eligible for the Child and Dependent Care Credit. You can claim the credit if you pay child care expenses for a dependent child age 12 or younger so you can work. The credit ranges from 20 percent to 30 percent of up to $3,000 of expenses for one child and $6,000 for two children. If you make more than $43,000, the credit saves up to $600 for one child and $1,200 for two or more children. The maximum credit is $1,050 for one child and $2,100 for two or more children.
Adopting a child is a complex and time-consuming process that can result in tens of thousands of dollars of travel costs, adoption fees and other costs. The government offers an adoption credit worth up to $12,650 for each child adopted in 2012. For the 2012 tax year, the adoption credit is not refundable, meaning you cannot get a refund for any unused credit if you have $0 tax liability.
- IRS: Six Important Facts about Dependents and Exemptions
- IRS: Ten Facts about the Child Tax Credit
- IRS: Ten Things to Know About the Child and Dependent Care Credit
- SmartMoney: My Kids Are Worth How Much?
- North American Council on Adoptable Children: Federal Adoption Tax Credit after 2011
- IRS: Publication 503 - Main Content
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