The 5 biggest tax breaks for parents in 2022

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Tax breaks can help offset some of the expenses associated with raising a child.


Key points

  • Thousands of dollars are available to families through tax credits and deductions.
  • This year, the help of Uncle Sam has been reinforced.

When my children were young, I remember hearing statistics about the cost of raising a child from birth to 18 years old. The figure seemed appalling to me and much more expensive than I could imagine. Although we ended up spending a small fortune, it wasn’t all at once, which I still consider a small blessing. No matter how much you spend raising your children, the government gives you some kind of respite by offering credits and deductions at tax time. Here are some of the biggest.

1. Earned Income Tax Credit (EITC)

The EITC is designed to help people living in poverty get a little something back at tax time. Although a person does not need to be a parent to claim the EITC, parents receive a higher tax credit. If the following criteria apply to your child, that child is also eligible for the EITC:

  • Has a valid social security number
  • Under the age of 19 (or 24 if enrolled in university full-time)
  • Has a relationship with you
  • Lived with you in the United States for at least half of 2021

As mentioned, the EITC is intended to help low-income Americans, so there are income thresholds that must be met. Here’s a breakdown of the income limits for the 2021 tax year, according to the IRS.

Children or parents claimed

Maximum AGI (filing as single, head of household, widower or married in separate filing)

Maximum AGI (filing as jointly married filing)

Zero

$21,430

$27,380

A

$42,158

$48,108

Of them

$47,915

$53,865

Three

$51,464

$57,414

Data source: IRS

In addition to annual income limits, you cannot have more than $10,000 in investment income to qualify for the EITC. If you qualify, the amount you will receive depends on your Adjusted Gross Income (AGI) and the number of children claimed. For example:

  • No eligible child: $1,502
  • 1 eligible child: $3,618
  • 2 eligible children: $5,980
  • 3 or more eligible children: $6,728

2. Child and dependent care tax credit

Another credit that can increase your bottom line this year is the Child Care and Dependent Care Tax Credit. If you pay for child care while you work (or while you look for work), this credit provides a tax benefit.

Qualifications

To be eligible, the child (or children) in care must be under the age of 13. The exception to the rule is a child who is mentally or physically unable to care for themselves at age 13 or older.

How much can you receive

The credit to which you are entitled is based on two elements:

  • Your income
  • The amount you spend to pay for care

The American Rescue Plan Act of 2021 made the credit more generous. Depending on your situation, you may qualify for a maximum of $4,000 for one dependent and $8,000 for two or more eligible dependents.

Read more: Pay for childcare? Here’s how you could save more money this year

3. Child tax credit

Between July and December 2021, millions of families received six monthly child tax credit payments. Each payment was up to $300 per child under age 6 and $250 for children ages 6 to 17. eligible for full payouts with an AGI of $112,500 or less.

Even if you received a payment each month between July and December, that’s only half of what’s owed to you. You can file the rest of the credit on your 2021 tax return. It will either be included in your refund or used to reduce any taxes you owe.

If you elected not to receive child tax credit payments in the last half of 2021 or if the IRS is not aware of a new dependent added to your family, you are eligible to receive the full amount of the child tax credit. This represents $3,600 per child under age 6 and $3,000 per child aged 6 to 17.

4. 529 State Tax Plans

529 state plans are designed to help save for a child’s education costs. Between the two types of 529 available in some states – the prepaid tuition plan and the college savings plan – you can prepay credits at a college or university for future use or save for elementary education, a child’s high school, college or business.

A 529 cannot be used as a deduction on your federal tax return, but can be deducted on most state tax returns. Also, if you use funds from a state 529 tax plan to cover eligible educational expenses, the income earned from the money is not subject to federal taxes.

Read more: What is a 529 plan?

5. US Opportunity Tax Credit (AOTC)

As long as your adjusted gross income (MAGI) does not exceed $160,000 if you are married and filing jointly, or $80,000 if you are a single filer, you are eligible for the education tax credit. Here’s how it works:

You are declaring the eligible expenses you paid for the first four years of college, university or professional studies for a dependant. This includes tuition, course materials, and fees. The maximum you can claim per child is $2,500. Through the AOTC, you can receive up to $1,000 of these funds as reimbursement or offset for taxes you owe.

If you are eligible, you should receive a Form 1098-T from the educational institution your dependent attended. If you think you qualify for the credit but did not receive a Form 1098-T, contact the school.

There’s no denying that raising a child is an expensive business. Any money put back in your bank account is money you’ll have on hand to pay for the next big deal.

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