Child Tax Benefits: How Parents Can Save on Taxes

As a parent, you’ll be happy to know that you may qualify for certain tax benefits that can help you save or get money back at the end of the year.

Understanding the tax benefits of having a child can help you make the most out of tax time and ensure you don’t miss out on opportunities. Below, we’ve outlined some of the tax credits and deductions you might be able to qualify for. 

Keep reading to learn more about how you can potentially lower your tax bill by taking advantage of the child tax benefits the IRS offers.

Are there any tax benefits for having children?

There are several tax benefits for having children, which allow parents to save on taxes. As a parent, it’s important to understand which child tax benefits you qualify for and what you need to do to receive them.

Keep in mind there are specific requirements to qualify for child tax benefits, including the Child Tax Credit, Child and Dependent Care credit, and education tax credits. We’ll take a closer look at these tax benefits and their requirements later on.

Who is considered a child for tax purposes?

The IRS has specific rules about claiming a child as a dependent on your tax return, so for tax purposes your child may or may not be eligible. In order to qualify as a child for tax purposes, children must:

• Be younger than you and under the age of 19 (under 24 for full-time students)
• Be a son, daughter, adopted child, foster child, sibling, half-sibling, stepsibling, or descendent
• Live in your home for more than half the year
• Provide less than half of their own support
• Be a US citizen, US national, or a resident of Canada or Mexico
• Not file a joint return

Ways parents can save on federal taxes

Parents of children who qualify for child tax benefits can take advantage of those benefits to save on federal taxes. There are several tax benefits of having a child — and you can learn more about each of them below.

Child Tax Credit

The Child Tax Credit applies to almost every family with children. All working families with an income up to $200,000 ($400,000 for those filing jointly) are eligible for the Child Tax Credit.

While the Child Tax Credit was temporarily raised to up to $3,600 per child, it has been lowered back down to up to $2,000 per child. Children must be under 17 at the end of the tax year.

Even families who don’t make enough to be required to file taxes can file their taxes to get the refundable portion of the  Child Tax Credit which is up to $1,600 for tax year 2023.A refundable credit is the portion of a credit you can get even if you don’t owe any taxes.  With non-refundable credits you only get the credit up to the amount you owe.

Education tax credits and deductions

There are several types of education tax credits that your children may qualify for. Popular education tax credits include the American Opportunity Tax Credit (AOTC), the Lifetime Learning Credit (LLC), and student loan interest deduction.

The AOTC is designed to help students with expenses during the first four years of higher education. Parents can receive a maximum of $2,500 per eligible student. If you don’t owe any taxes after the AOTC, you can receive 40% of the remaining credit refunded to you (up to $1,000).

To qualify for AOTC, students must:

• Be pursuing a degree or other recognized education credential
• Be enrolled for at least one academic period (semester, trimester, or quarter) that began in the tax year
• Be within the first four years of their higher education at the beginning of the tax year
• Not have claimed the AOTC  for more than four tax years
• Have no felony drug conviction at the end of the tax year

The Lifetime Learning Credit is a credit up to $2,500 per tax return for undergraduate, graduate, and professional degree courses – including courses to acquire or improve your job skills. You may be eligible for the LLC if you make under $90,000 annually ($180,000 if filing jointly).

There are three requirements to qualify for the LLC:

• You, your dependent, or a third party must pay qualified higher education expenses
• You, your dependent, or a third party pay education expenses for an eligible student at an eligible school
• The eligible student is you, your spouse, or a dependent who’s listed on your tax return

You can also deduct the interest paid on student loans of up to $2,500 in a tax year. In order for your student loan to qualify, it must be used to pay for higher education expenses:

• For you, your spouse, or someone who was your dependent when you applied for the loan.
• For the education during an academic period for an eligible student.
• Paid or incurred within a reasonable amount of time of taking out the loan.

Either you or your student, but not both can claim education tax benefits. For parents who earn more than the income requirements and are not eligible to claim education benefits, be sure to have a discussion with your dependent student about whether you should claim them as a dependent so that they can claim the education benefits.

Education tax benefits can have different rules, but they can help you lower your tax bill at the end of the year. Don’t worry about knowing all of these rules for education benefits. TurboTax will ask you simple questions about you and your education and will guide you so you get the education tax benefits you are eligible for. You can also get help along the way if you have questions or get your taxes done from start to finish with a TurboTax Live expert.

Credits for child care

Some parents may be eligible to receive the Child and Dependent Care credit for child care expenses and even day camps — but there are specific requirements you have to meet. If you meet these requirements, you can reduce your federal income tax.

You may meet eligibility requirements for credits for child care if:

• You paid child care expenses for a qualifying child to enable you (and your spouse if filing jointly) to work or look for work.
• You (or your spouse if filing a joint return) lived in the United States for at least half the year (special rules apply to military personnel stationed in other countries).

Qualifying children are generally dependents under the age of 13 or a dependent or spouse of any age who can’t care for themselves. The amount you receive is based on your income and how much you pay for care, so you can:

• Work
• Look for work
• Attend school

Earned Income Tax Credit

The Earned Income Tax Credit (EITC) is designed for low- to moderate-income families. You can use this credit to reduce and save money on your taxes.

There are specific income thresholds you must meet to qualify for the EITC, and the amount you receive may also vary based on how many children or dependents you have and whether you’re disabled. Eligible taxpayers can receive an EITC between $600 and $7,430 for tax returns filed for 2023.

Basic EITC requirements include:

• Certain income limits depending on your family size
• Investment income below $11,000 in the 2023 tax year
• Having a valid Social Security Number
• Being a US citizen or resident alien all year
• Not filing Form 2555

Keep in mind that your tax refund may be delayed if you claim the EITC.

Credits for other dependents 

Even if you don’t qualify for the Child Tax Credit, you may be able to claim the Credit for Other Dependents.

A maximum credit amount of $500 for each dependent can be claimed for:

• Dependents of any age — including dependents over the age of 18
• Dependents who have a Social Security Number or Taxpayer Identification Number
• Dependent parents or other qualifying relatives you provide support for
• Dependents living with you who aren’t related to you

The credit begins to phase out when your income exceeds $200,000 ($400,000 for married couples filing a joint tax return).

However, you can claim the Credit for Other Dependents if:

• You claim that dependent on your annual tax return
• The dependent is a US citizen
• You’re not using the dependent to claim the Child Tax Credit or another child tax benefit

Are there state child tax benefits?

In addition to the federal tax benefits of having a child, you may also be able to qualify for state child tax benefits. Some states offer benefits for parents of children who meet specific criteria.

For example, the Oregon Kids Credit is designed for parents with a modified adjusted gross income of $25,000 or less. Eligible parents can receive up to $1,000 per child for up to five dependent children between the ages of 0 and 5.

There are state-level child tax credits in 15 states currently, including:

• Arizona
• California
• Colorado
• Idaho
• Maine
• Maryland
• Massachusetts
• Minnesota
• New Jersey
• New Mexico
• New York
• Oklahoma
• Oregon
• Utah
• Vermont

If you live in one of these states, you may qualify for a state-level child tax credit in addition to any federal tax credits you’re eligible for. Research child tax credits in your state to learn more about these child tax credits and the qualification requirements.

As you can see, there are many potential tax benefits of having a child. Consider these criteria to figure out what tax advantages you can claim when you file your return.