This time of year, the inevitability of taxes (not to mention cold season, laundry, and so on) can feel all-consuming. Over the last few years, there have been several adjustments to taxes in terms of child deductions, write offs, and how to best care for children with disabilities. People who file for themselves who want some light reading (142 pages of it) can check out IRS Publication 17, the 2023 Tax Guide for Individuals—but if that doesn't sound like a fun way to spend an afternoon, here is an overview. Whether you’ve recently had your first baby or are going through this for the umpteenth time, there's probably some new info to be aware of as you prepare your taxes in 2024.
Child Tax Credit
During the first two years of the pandemic (is it over? Dunno), families received a stimulus package up to $3,600 per child as their Child Tax Credit, which was metered out in monthly checks. Last year, it was reduced to up to $2000 and was part of the lump sum filing, meaning you may not owe as much on your taxes once you account for your dependents. There are several factors that determine whether or not your child is eligible, but biological, step, foster, and adoptive children under age seventeen can qualify. Other relationships that might make someone your dependent include siblings and half-siblings, grandchildren, and nieces or nephews so long as they are under age seventeen and in your care. They have to have lived with you more than half the year and not generate more than half of their own financial support.
If your annual income is $200,000 or less ($400,000 or less if filing jointly), you’re eligible for a $2,000 credit. Partial credits might be allowed for income above that amount. See the IRS website for applicable forms and more eligibility. This year, if the tax credit qualifies you for a refund, up to $1,600 of your Child Tax Credit is eligible to come back to you.
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Children with disabilities
At a state level, children with disabilities may be eligible for other tax exemptions. To get extra credits, first your child must meet all criteria for the Child Tax Credit. To be eligible for additional credits, they must receive early intervention or special education services as defined by the state. In addition, they must qualify under the Individuals with Disabilities Education Act (IDEA) as of December 31, 2023, and under state laws regarding disability designation. Additional medical expenses related to the disability might be deductible. Things like medical conferences, adjustments or amendments made to your home for their comfort or safety, and other accommodations might qualify.
To claim your child with a disability, your child must have an Individualized Family Service Plan (IFSP) for children in early intervention or Individualized Education Plan (IEP) for school-aged children as well as a current eligibility statement. You do not necessarily need to include documentation of these qualifiers, but you should retain a copy along with your filing. Applicable forms for filing will be at your state’s Department of Revenue website.
Adoption
If you adopted a child in 2023, there are several tax considerations. The IRS says, “Tax benefits for adoption include both a tax credit for qualified adoption expenses paid to adopt an eligible child and an exclusion from income for employer-provided adoption assistance.” The maximum amount for 2023 is $15,950 per child. Adoption, court, and attorney fees, traveling expenses, and other related costs can be included for the tax credit. The credit is non-refundable; however, the excess can be carried for five years.
These exemptions don’t include when an individual, such as a step-parent, adopts their spouse’s biological child. The rules of when you can file for these credits depend on a variety of factors, including if it was a domestic or foreign adoption and if the child has “special needs.”
Child care
In general, yes, you can deduct child/dependent care expenses. Things that are required for this include the daycare address, if they go to a dedicated daycare facility, the employer identification number (EIN), and the total you paid for care. Daycare facilities should issue you a summary at the end of the year. For providers in their home, they still must provide something like a Social Security Number (SSN) and address for expenses to be eligible. Nanny care is deductible, assuming the family is doing it legally. Nannies are considered household employees and to properly deduct this expense, you should be doing payroll for them and then their wages would be deductible as a dependent care credit. If you are paying under the table, you cannot deduct expenses.
Childcare, especially full-time care for kids not yet in school, can cost well over $10,000 a year, but for 2023, $3,000 is the most you can get back for one child and $6,000 for two or more. It’s not nothing, but it’s not everything. Some employers have non-taxable fringe benefits for employees and reimburse them for some of the cost. If that is the case, those figures are all listed on the W-2 and will subtract from the eligible credit.
Higher education
Parents sending their kids to college are potentially eligible for tax credits to help offset costs of education. There are several qualifying factors, including if the expense and the educational institution qualify for exemptions. If you or your spouse are getting advanced education, you may also be eligible. A student who has to file a tax return cannot also get higher education exemptions if their parents are claiming them as a dependent, so make sure to have conversations with your older kids about how you’re filing.
There are two types of credits. The Lifetime Earning Credit is up to $2,000. Income limits for 2023 for this credit are $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return). The American Opportunity Tax Credit (AOTC) applies to the first four years of higher education. The maximum annual credit per eligible student is $2,500. If the credit brings the amount of tax you owe to zero, you can have 40 percent of any remaining amount of the credit (up to $1,000) refunded to you. This year the income limits to the AOTC are $80,000 or less ($160,000 or less for married filing jointly), and you can receive a reduced amount of the credit if your MAGI is over $80,000 but less than $90,000 (over $160,000 but less than $180,000 for married filing jointly).