Being a parent brings immense joy and responsibility—and it also opens the door to unique tax benefits. From deductions to credits, these opportunities can lower your tax bill and even result in a larger refund. Here’s a complete guide to the essential tax breaks parents need to know for the 2024 tax year.
Obtaining a Social Security Number (SSN) for Your Child
To claim most child-related tax benefits, your child must have a Social Security Number (SSN), which serves as their Taxpayer Identification Number (TIN). It’s advisable to request an SSN as soon as possible after birth, often through the hospital’s birth registration process. If not done at birth, you can apply at a Social Security office by providing proof of the child’s citizenship, age, and identity, as well as proof of your identity.
Beyond tax purposes, having an SSN for your child is crucial for opening a bank account, securing medical coverage, and accessing government services.
Key Tax Credits for Parents
Child Tax Credit (CTC)
The Child Tax Credit is a cornerstone of tax benefits for parents, offering significant financial relief. For 2024, the credit is $2,000 per qualifying child, with phaseouts beginning at $200,000 of modified adjusted gross income (MAGI) for single filers and $400,000 for joint filers.
If your tax liability is less than the credit amount, you can claim up to $1,700 as a refundable credit, known as the Additional Child Tax Credit. However, once a child turns 17, they no longer qualify for the CTC. Instead, you may be eligible for the Credit for Other Dependents.
Child and Dependent Care Credit
This credit helps parents offset childcare expenses for children under 13 or dependents who are unable to care for themselves. To qualify, both parents (if filing jointly) must be gainfully employed or seeking work, with exceptions for disabilities or full-time students.
For 2024, the credit covers 20% to 35% of eligible expenses, capped at $3,000 for one child or $6,000 for two or more. The maximum credit ranges from $600 to $1,050 for one child and $1,200 to $2,100 for two or more, depending on income.
Note: The credit is nonrefundable and reduced by any employer-provided dependent care benefits.
Adoption Tax Credit
Adopting a child comes with significant costs, but the Adoption Tax Credit helps alleviate the financial burden. For 2024, the credit allows up to $16,810 per child for qualified adoption expenses. This includes fees, court costs, attorney fees, travel expenses, and more. For adoptions of children with special needs, the full $16,810 is available regardless of actual expenses.
The credit begins to phase out at $252,150 MAGI and is fully phased out at $292,150. Additionally, employer-provided adoption benefits up to the same amount may be excluded from income but cannot be claimed as a credit.
Earned Income Tax Credit (EITC)
The EITC provides significant support to low- and moderate-income working parents. The credit amount depends on income, filing status, and the number of qualifying children. For 2024, the maximum EITC ranges from $632 (no children) to $7,830 (three or more children). The credit phases out at higher income levels.
Importantly, the EITC is refundable, so you can receive the difference as a refund if the credit exceeds your tax liability.
Credit for Other Dependents
Introduced in the Tax Cuts and Jobs Act, this $500 nonrefundable credit is for dependents who don’t qualify for the CTC. This includes:
- Children who lack an SSN but have an Individual Taxpayer Identification Number (ITIN) or Adoption Taxpayer Identification Number (ATIN).
- Children who are 17 or older.
- Non-child dependents such as aging parents or other relatives.
Education-Related Tax Credits
1. American Opportunity Tax Credit (AOTC)
- Offers up to $2,500 per eligible student for the first four years of higher education.
- Covers 100% of the first $2,000 in qualified expenses and 25% of the next $2,000.
- Up to $1,000 is refundable, even if no tax is owed.
- Phases out for MAGI between $80,000 and $90,000 (single) or $160,000 and $180,000 (joint).
2. Lifetime Learning Credit (LLC)
- Provides 20% of the first $10,000 in qualified tuition and fees, with a maximum credit of $2,000 per return.
- Nonrefundable and has the same phaseout limits as the AOTC.
- No limit on the number of years it can be claimed, making it ideal for graduate students or part-time learners.
Tips for Maximizing Your Tax Benefits
- Track Expenses: Keep detailed records of childcare, adoption-related costs, and education expenses.
- Consult a Professional: Tax laws can be complex, and working with a tax professional ensures you don’t miss out on valuable credits and deductions.
- Amend Past Returns: If you overlooked any credits, you can typically amend returns for up to three years.
Final Thoughts
Parenting comes with many responsibilities, but understanding and utilizing tax benefits can significantly ease the financial burden. From the Child Tax Credit to education-related tax breaks, these programs are designed to support families at every stage. For personalized advice or help claiming these credits, consult with a tax professional.
