NEW YORK – There are a few tax tips parents of children 17 and under should keep in mind before filing, tax pros say. Here’s what to know:
Child tax credit
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The child tax credit has reverted lower for 2023 than in previous years, when it was expanded due to COVID. This means taxpayers with one or two children may see a lower credit for their children under age 17 than in 2021. It’s still up to $2,000 per child, though, and it can be claimed alongside the standard deduction and reduces your total tax bill, said Eric Bronnenkant, director of tax at Betterment, a financial advisory company that provides digital investment, retirement and cash management services.
Child and dependent care credit and deductions
The child and dependent care credit is available for expenses paid for a qualifying child for day care. It can also be used for dependents who are not able to care for themselves, if the requirements are met.
In addition, up to $3,000 per child (up to $6,000 total) can be deducted in child care costs. If you have a dependent care program through your employer, you are also allowed to deduct up to $5,000 year in pre-tax dollars, says Mark Jaeger, vice president of tax operations at TaxAct, a company based in Cedar Rapids, Iowa, that provides income tax preparation software to consumers and tax professionals.
“But you can’t double dip,” Jaeger says. “If you take $5,000 in pre-tax dollars and you have two children in child care who qualify for child care deductions, you can only take $1,000 in remaining dependent care expenditures before reaching that $6,000 maximum.”
Pending legislation
Congress has been looking at expanding the child tax credit. Depending on your income bracket and the number of kids you have, this change could provide a boost, says Kathy Pickering, chief tax officer at H&R Block.
“Many taxpayers have asked if they should wait until the legislation is passed before filing their tax return. Because the legislation is not final, and we’re unsure if or when it will get done, it’s important to know that if passed, the IRS will calculate any adjustments due and automatically send payments. There’s no need for filers to wait,” she says.
Make sure your child has a Social Security number
This may seem obvious, but in order to claim your child as a dependent, you will need to include your child’s Social Security number, so make sure all of your children have one, says Tom O’Saben, director of tax content and government relations at the National Association of Tax Professionals.
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Find more of AP’s tax season coverage here: https://apnews.com/hub/personal-finance