Five Tax Credits that Can Help Parents Save Big on Tax

As a parent, you know how expenses can add up. Being a parent brings with it additional costs such as food, shelter, clothing and other basic necessities. There are also extracurricular activities, medical costs, and child care. All of these are very expensive. And we haven’t even mentioned college tuition yet, which most parents will tell you ranges from extravagant to astronomical.

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Every dollar counts when it comes to providing for your kids. To help parents save money on the costs of raising one or more small children, here are five tax credit options.

Child Tax Credit (CTC).

Children under 16 years old may be eligible for a Child Credit of up $2,000 per qualifying dependent, when they file their 2022 tax returns. The CTC is now available to anyone 16 years of age or older for tax years 2022 and 2022.

Although the IRS didn’t distribute Advanced Child Tax Credit in 2022, it may have been more than the 2021 tax seasons.

Credit for Child and Dependent Care Tax Credit

While the Child and Dependent Care Tax Credit might not be as well-known than the CTC, it could yield more tax credits. This credit was first created in the 1970s to aid working parents in paying for daycare, afterschool programs, summer camps and other expenses. The 2021 ARP expanded the eligibility of the credit, making it more refundable and enhancing what parents can claim.

This tax credit provides parents with up to $2,000.00 for a child and up up to $4.200 if they have more than one child. It allows for maximum tax credits of $4,000 to $8,000 for those with two or more children.

Earned Income Tax Credit (EITC).

The EITC is a tax credit that is available to workers who earn low or moderate incomes. It’s based on factors such as family size, filing status, and income limits (both from work and investments).

Even if your children are not eligible, you can still apply for EITC. The basic eligibility rules for parents with qualifying children are: You must have earned income less than $59,000.0, your investment income not exceed $10,000.0, you must have a valid Social Security card by the due dates of your return and be a U.S citizen of a resident alien throughout the year.

American Opportunity Tax Credit (AOTC).

The American Opportunity Tax Credit allows students to claim a credit towards qualified education expenses during their first four years. It includes tuition, fees, course material, and room and board. Medical costs, transportation, and insurance are not exempt. Eligible students can receive a maximum of $2,500 in annual credits.

Your modified adjusted gross income (MAGI), which is your modified adjusted gross income, must be less than $80,000 for single filers or $160,000 for married joint-filers to claim the full credit.

529 State tax plans

529 plans are state-run, tax-advantaged accounts that allow you to save for a child’s college education. These plans are available in all states, except Wyoming.

There are two types to 529 state tax plans. They are savings plans or prepaid tuition plans. Because each state has different plans and because you don’t necessarily have to be a resident of a state to get its 529, do your research carefully and pay attention to the tax breaks, fees, investment strategies and type of plan each state provides.

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This article first appeared on GOBankingRates.com: 5 Tax Credits That Can Save Parents Big Money