Tax season is here — and with all of the changes in tax benefits and deductions over recent years, lots of families might feel more daunted by the filing process than in years past. Many pandemic-era credits have now expired, and the IRS tax brackets have shifted this year, causing some confusion and concern about smaller refunds and higher tax balances.
While families may potentially be facing steeper tax bills than in recent years, there are still some ways to maximize savings with credits and deductions specifically for parents and families. Here are six ways parents and caregivers can offset their tax costs this tax season —
- Child Tax Credit
During the early years of the COVID-19 pandemic, the Child Tax Credit (CTC) was increased and sent directly to qualifying families in tax-refundable installments. Those pandemic-era changes to the CTC have now expired. This filing season, the maximum tax credit per qualifying child is $2,000 for children five and under, or $3,000 for children 6 through 17 years old — and is no longer available in advance installments.
- Tax exemptions for dependents
Tax deductions or exemptions help you save money on your taxes by deducting certain expenses from your income, which can help put you in a lower tax bracket. One example of this is taking a tax deduction for any dependent child under the age of 19 (or under the age of 24 if they are a full-time student). There aren’t any age restrictions on children who are permanently disabled or have qualifying special needs. The tax exemption you can take for each dependent for 2022 is $4,400.
- Child and Dependent Care Credit
Any child care expenses for children under the age of 13 can count as qualifying expenses for the Child and Dependent Care Credit. That includes everything from daycare to babysitting to summer camp. Parents with an adjusted gross income of $125,000 or below qualify for a credit of up to 50 percent of their care-related expenses (up to $2,100). There is a sliding scale of decreasing credit amounts that you may still qualify for if you earn over $125,000.
- Education-related deductions
Many parents are handling some student debt and education expenses at tax time — both for their kids’ education and their own. Student loan interest payments on loans from qualifying institutions can be deducted from yearly taxes. Not all student loan payments are eligible for this deduction. Private loans in particular may not qualify. There are also income requirements for this deduction, as with most others.
The American Opportunity Tax Credit allows you to deduct costs related to college tuition and fees, books, and supplies. It can be claimed in amounts up to $2,500 per student, and up to $1,000 of it can be refundable (potentially adding to the refund you get back, rather than simply reducing the amount of tax you owe). Similarly, the Lifetime Learning Credit allows you to deduct slightly less (up to $2,000) of your qualifying education expenses, but can be used beyond four years of secondary education. That makes it useful for older kids or parents who are pursuing graduate degrees or are taking classes without a degree in mind, while the American Opportunity Tax Credit is usually more beneficial for parents because it can be used for four years of higher education and allows a larger deduction.
- Adoption tax credit
Parents who adopted a new child in 2022 can help offset the costs of the expensive adoption process with the adoption tax credit. New adoptive parents can receive up to $14,890 in tax credit spread over up to five years after first claiming the credit. For example, a parent who had $8,000 of adoption expenses in 2022, and claimed $4,000 of that total in the first year after the adoption, they can choose to roll over the remaining $4,000 in credit for the next four years.
- Educator Expense Deduction
This tax deduction isn’t specifically for parents or people with dependent children, but is worth noting for the many teachers who spend their own pocket money on supplies for their students and classrooms. For the first time since instituting this deduction, the IRS will raise it from $250 to $300 for the year. The small increase is still short of covering the average of $550 that most teachers end up spending on supplies and teaching materials throughout the year, but it should help to ease some of the burden of their out-of-pocket expenses.
The deadline to file your 2022 tax returns is Tuesday, April 18, 2023. If you think you may need more time, it’s important to apply for an extension as soon as possible. If you made less than $73,000 in 2022, you can use the IRS’ Free File tool that allows you to file your returns for free.
Be sure to have Social Security cards on hand for yourself and each of your dependents before you begin filing your taxes.