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Claiming the tax credit for minors: rules and exceptions

Parenting is not cheap. But when the time for taxes comes, parents and guardians of children can benefit from a range of tax savings that are not available to the public.

The Credit Tax Credit is the best known of these, since it recently doubled in size with the passage of the 2017 Tax Cuts and Jobs Act. But parents can also take advantage of tax benefits for some childcare expenses, including for adult children.

Tax credit for minors

This tax credit can reduce liability up to $ 2,000 per child. It can also pay you back up to $ 1,400 even if you had no tax liability, making it one of the most valuable tax credits.

About 22 million families, or about 1 in 7 taxpayers, applied for the tax credit for minors in 2017, the most recent year for which IRS data are available. The figure was probably much higher, as the tax law of the end of 2017 changes the maximum income that someone could earn and still benefit from the credit more than doubled.

The IRS lists seven criteria for a child to qualify for the credit:

  • The child must be a U.S. citizen or legal resident
  • He should not be older than 16 at the end of the fiscal year
  • The child must be your son, adopted child, sister or brother or descendant of one of them (such as a granddaughter, granddaughter or granddaughter)
  • It is necessary to apply for the child as an employee of the tax return
  • The child cannot provide more than half of their living expenses
  • The child cannot file a tax return as part of a married couple
  • The baby was supposed to live with you for more than half of the year

The residency requirement is structured in such a way that a single child cannot be requested by more than one taxpayer for a given year. But its complexity can be confusing, especially in multi-generational families, said Nina Olson, founder of the Taxpayer Rights Center and National Taxpayer Advocate from 2001 to 2019.

“Due to the dynamics of the American family, children move back and forth between separate parents; they can live with grandparents; they could live with unmarried parents, “Olson told CBS News.

“If you only care for a child and he’s your cousin, this won’t necessarily qualify you” for the tax credit, he explained. “That’s where you really like people who support something that maybe makes sense, but doesn’t qualify under the law.”

What about divorce?

If you have a situation that can cause problems, they are the children of divorced parents, “said Mark Jaeger, TaxAct’s director of tax development.” Sometimes they may not understand who should claim which child, and this causes some complexity. ”

A divorce decree will usually explain who can claim the child, but individual families can make decisions differently, Jaeger notes. Sometimes parents alternate years, with one requesting tax credit for children in odd years and the other claiming them in even years. Or, if two children are involved, a parent can claim each child.

However, it is not always foolproof.

“I have had situations in my practice where I have had parents who complain to me, even though they have the right to ask for a child about their tax return, their former partner has requested the child and obtained an additional refund fee”, said Jonathan Medows, a Manhattan-based CPA. “He created a fight with the IRS to get their refunds.”

For this reason, Medows informs customers who request credit to submit as soon as possible.

If your employee is 17 or older

Children 17 and older will not qualify you for the full child tax credit, but you can get up to $ 500 per person through an employee assistance credit. You can claim an adult child or an elderly parent, for example, as long as that person meets the IRS definition of a dependent person.

Childcare costs

In addition to the child tax credit, working parents can deduct part of the cost of childcare. If you paid someone to take care of your children so that they could work or look for work, you probably qualify. The deduction limit is $ 3,000 for a single child or $ 6,000 for two or more children.

A quick reminder of the difference between tax credits and tax deductions: the credit reduces the amount owed in taxes dollar by dollar, making them generally more valuable than the deductions. A deduction reduces the amount of your income that you have to pay taxes on, so its value will depend on which tax bracket you fall into.

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