Family Tax Credits

Credits Vs Deduction

Credits affect the amount you owe directly by reducing it or increasing your refund. Some credits will provide a refund even if you do not owe taxes. Deductions lower your taxable income; therefore, reducing taxes owed. 

Here are Family and Dependent Credits:

Child Tax Credit (CTC)

Eligibility

• Qualifying child must be under the age of 17.
• Qualifying child must be claimed as your dependent on your tax return.
• You must provide for half or more of their financial support.
• Qualifying child must not file a joint return with spouse for the tax year.

Credit Amount

• $2,000 for each qualifying child.

Phase Out

• Phase out of credit occurs when modified adjusted gross income (MAGI) exceeds $200,000 for individual ($400,00 for joint).
• Additional Child Tax Credit has increased to $1,500.

Child and Dependent Care Credit (CDCC)

Eligibility

• You paid for the care of a qualifying individual so you or your spouse (if filing jointly) can work or seek employment.

Credit Amount

• The amount of expenses to calculate the credit cannot exceed $3,000 for one qualifying individual or $6,000 for two or more. 
• If you receive a deduction for dependent care, you must reduce that amount from your calculation.

Qualifying individual

• The qualifying child was under 13 years old and your dependent.
• Your spouse who was physically or mentally unable to care for themselves and live with you for more than six months.
• An individual who was physically or mentally unable to care for themselves and live with you for more than six months and either:
  • was your dependent or 
  • qualifies as your dependent except their gross income was $4,400 or more or filed a joint return, or you (or your spouse, if filing jointly) could have been claimed as a dependent on another taxpayer’s 2022 return.
• Caution: children of divorced or separated parents or of parents living apart have different circumstances which may apply. See publication 503 for help.

Use the IRS interactive tax tool to see if you qualify

Earned Income Tax Credit (EITC)

Eligibility:

• You worked and your earned income was under $59,187.
• You have investment income less than $10,300 for 2022.
• You have a valid Social Security number by the due date of  2022 return (including extensions).
• You are a U.S. citizen or a resident alien all year.
• You did not file Form 2555, Foreign Earned Income.
• You meet certain rules if you are separated from your spouse and not filing a joint tax return.

Credit Amount: 

• No qualifying children $560
• 1 qualifying child $3,733
• 2 qualifying children $6,164
• 3 or more qualifying children $6,935

Use the  IRS interactive tax tool to see if you qualify 

Education Credits

There are two types of credits to help with the cost of  higher education by reducing the amount of tax owed. You can even receive a refund if the credit reduces your tax zero.

American Opportunity Credit (AOC)

Eligibility:

• You or your dependent must be pursuing a degree or other educational credential.
• You must be enrolled at least half time for at least one academic in the tax year.
• You have not completed  the first four years of higher education at the beginning of the tax year.
• You have not claimed AOC or the former Hope Credit for more than four tax years
• You do not have a felony drug conviction at the end of the tax year.
• The credit is for qualified expenses such as tuition,fees, and other related expenses for you to enroll.
• For AOC only, you can include the cost for books, supplies, and equipment needed for a course even if these expenses were not paid to the school. 

Credit Amount

• Up to $2,500 per eligible student. Additionally, 40% of the credit will be refunded to you (up to $1,000) if your credit is more than what you owe.

Phase Out

• Phase out occurs when MAGI is between $80,000 and $90,000 for individual ($160,000 and $180,000 for joint).
• You are not eligible if your MAGI is $90,000 or more ($180,00 filing jointly).

Lifetime Learning Credit (LLC)

Eligibility

• You or your dependent must be pursuing a degree or other educational credential or to get or improve job skills.
• You must be enrolled at least one academic period (defined by the school).
• The credit is for qualified expenses such as tuition, fees, and other related expenses for you to enroll.

Credit Amount

• A maximum of $2,000 or 20% of the first $10,000 of qualified education expenses.

Phase Out

• Phase out occurs when MAGI is between $80,000 and $90,000 for individual ($160,000 and $180,000 for joint).
• You are not eligible if your MAGI is $90,000 or more ($180,00 filing jointly).

For both AOC and LLC these expenses do not qualify:

• Room and board
• Insurance
• Medical expenses (including student health fees)
• Transportation and similar living expenses
• Same expenses paid by tax free educational expenses (see below)
• Same expenses used for any other deduction or credit
  • Tax free educational assistance include:
    • Tax-free fellowships and scholarships
    • Any need-based education grant e.g pell grants
    • Assistance from employers
    • Veterans’ assistance
    • Any other payments that are tax free (excluding gifts or inheritances) for educational assistance

Adjustments to Qualified Education Expenses

• Total Tuition – tax-free education assistance received = expense to calculate credit

Use the IRS interactive tax tool to see if you qualify for an education credit

Adoption Credit

Eligibility

• You adopted an eligible child.

Credit Amount

• There is a credit and exclusion amount both based on MAGI. If you meet the requirements both the credit and exclusion will be $14,890 each. The exclusion must be taken first and then the credit.
• Credits taken in a previous year will have to be deducted in the current year regardless of success of adoption.
  •  Ex: 2021 credit taken $4,000. Credit available for 2022 will be $10,890.
• Any reimbursable expenses from your employer can be excluded from gross income and you are still eligible for the credit.
  • Ex: You pay $20,890 for an adoption. Your company reimburses you for $4,000. You can exclude $4,000 from gross income and claim $14,890.
• The dollar limitation applies separately to both credit and exclusion.
  • Ex: You pay $30,000 for an adoption. Your company reimburses you for  $14,890. You can exclude$14,890 from gross income and claim the credit of $14,890. The remaining $216 cannot be used for either an exclusion or credit.
• The credit is nonrefundable which means it is capped at your tax liability.
• If you have an excess of tax liability, it can be carried forward up to 5 years.

Qualifying Expenses

• Adoption fees necessary to adopt the child
• Fees related to court and attorneys
• Travel expenses including hotel and meals
• Other expenses related to the legal adoption of an eligible child  

Phase Out

• Phase out of credit occurs when MAGI is between $223,410 and $263,410. You are not eligible for the credit if MAGI is over $263,410.

Use the IRS interactive tax tool to see if you qualify

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Check Your Refund

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Mindful Reminder

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