A family tax credit may be able to reduce the amount of taxes you owe. You may receive credits for dependents, such as children and aging parents. In addition to the standard child tax credit, you might be able to take advantage of five tax credits if you meet the government’s criteria.
You may also qualify for an Earned Income Tax Credit (EITC) if you are part of a low- to moderate-income household. You can review the qualifications to claim one or some of the tax credits for families, which may be able to save you hundreds to thousands on taxes.
What is a Tax Credit?
There are two main types of tax credits. The first is a refundable tax credit that gives you a refund. The other is a nonrefundable tax credit that reduces the amount you owe the Internal Revenue Service (IRS).
A tax deduction is an amount subtracted from your income. For example, if you earn $50,000 but have a tax deduction of $5,000, then you will be responsible for taxes on only $45,000.
The five family and dependent tax credits available include the following:
- Earned Income Tax Credit
- Child and Dependent Care Credit
- Adoption Tax Credit
- Child Tax Credit and Credit for Other Dependents
- Credit for the Elderly or Disabled
In addition to the above tax credits, you may qualify for other types of credits. The IRS also offers credits based on your earnings, savings, health care coverage, and pursuit of an education and homeownership.
The below family and dependent credits may be accessible to you based on your situation. Review the eligibility requirements before claiming one on your next tax return.
Your Salary: Earned Income Tax Credit
The earned income credit may reduce the amount of money you owe the IRS. The credit amount depends on the number of dependents you have and if other criteria are met, such as having a disability.
The basic requirements for the earned income tax credit include the following:
- Have a Social Security number
- Be a U.S. citizen or legal resident
- File as single, head of household, qualifying widow/widower, or married jointly
- Have proof of income earned
- Have less than $3,650 in investment income
The maximum you can earn and still qualify for EITC depends on how you file and how many dependents you have. Likewise, the number of qualifying children you have will determine your maximum credit limit.
Maximum tax credit amounts for the upcoming 2023 tax year are as follows:
- $600 without qualifying children
- $3,995 with one qualifying child
- $6,604 with two qualifying children
- $7,430 with three or more qualifying children
Your refund may be delayed when you claim this credit because the IRS must wait until the middle of February to issue refunds.
Your Children: Child Tax Credit and Adoption Tax Credit
You might have heard of the dependent tax credit if you are a parent. You can claim up to $2,000 for each dependent younger than 17 years of age. However, the IRS reduces this amount if you earn more than $200,000 a year.
Dependents include biological, step, and adopted children. The child may also be a biological or legal sibling, such as a stepsibling, or a descendant, including grandchildren, nieces, and nephews.
The IRS might give you a tax break on funds spent for the adoption of a child. The adoption tax credit will only cover reasonable and necessary expenses, such as:
- Adoption and re-adoption fees.
- Attorney fees.
- Court costs.
- Travel expenses.
As of the 2023 tax year, the adoption tax credit is up to $15,950 for each adopted child. Unlike the child tax credit, this is a one-time tax credit, meaning you cannot claim this credit every year.
Child and Dependent Care Credit
In some cases, the IRS will let you claim expenses related to the care of dependents. The child care tax credit covers certain child care costs. Currently, you can only claim up to $3,000 for one dependent child, or $6,000 for two or more dependent children.
The person in need of care must be:
- A dependent younger than 13 years of age.
- A spouse or dependent who is physically or mentally unable to care for themselves.
The care provider expenses must relate to work, such as care while you are working or looking for employment. You must also identify the care provider on your taxes.
Your Age and Health: Credit for the Elderly or Disabled
Tax credits do not stop once your dependents become independents. The IRS provides an elderly tax credit for senior families with low incomes.
For example, to claim this credit, you must have an adjusted gross income equal to or less than:
- $17,500 if single, head of household, or a qualifying widow/widower
- $20,000 to $25,000 if married and filing jointly
- $12,500 if married but filing separate because you lived apart for the tax year
To qualify for the elderly tax credit, you must be 65 years of age or older by the end of the tax year. However, you must not have yet reached retirement age. Likewise, the IRS offers a disabled tax credit for those with a permanent and total disability.
To qualify for this credit, you must have a taxable disability income. The amount for the elderly or disabled tax credit ranges from $3,750 to $7,500 as of the 2023 tax year. You must also be a U.S. citizen or legal resident alien to qualify for either of these credits.