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Being a single parent can be exhausting and expensive, but the federal government makes allowances for you by providing Tax Credits for Single Parents. The credits center on the costs incurred while maintaining a home for minor children. That means you need to know what credits are available so that you can keep track of eligible expenditures through the year.
What is a Tax Credit
You might have heard the terms “exemption” and “credit” and believed they were interchangeable. Tax credits are amounts that are deducted directly from any taxes you owe. Exemptions are subtracted from your income before taxes. Usually credits are more valuable in reducing your tax liability than deductions. If your taxable income is $10,000, a $1,000 deduction would reduce that amount to $9,000, but it would probably only reduce your taxes by $100. If you receive a $1,000 credit, however, your taxes would be $1,000 less.
What Are the Tax Credits for Single Parents?
There are no credits especially for single parents, but there are several credits for which you may qualify. Here are a few.
• The Child Tax Credit
This allows you to subtract up to $1,000 from your tax liability for each child in your home who is your dependent and who is under 17 years of age. There are some income limitations. The most you can earn as a single head of the household is $75,000. This is a credit that is also refundable. That means if the child tax credit reduces your liability to zero, you can have the excess refunded to you.
• The Child and Dependent Care Credit
This credit is allowed to help you pay for someone to care for your children while you work. The caregiver may not be your dependent, and he or she must be older than 18. Before you can claim this credit, you must subtract any money that your employer may have given you through a Dependent Care Benefit Plan. The maximum you can claim for one child is $3,000. For more than one child, the maximum is $6,000. Overall, this should be worth between twenty and thirty percent of your child care expenses. Your qualifying dependent must be under thirteen or physically or mentally disabled.
• The Adoption Tax Credit
This credit is only allowed once. It is intended to help you pay for expenses incurred in the adoption of a child. The benefit is both a tax credit and an exclusion. Any money you receive from an agency or the government to help with the adoption must be reported, but it is not taxed. In addition, only your out-of-pocket expenses are eligible for the credit.
• The Earned Income Credit
This credit is intended to help families with low or moderate income. The credit amount varies with the number of qualifying children you claim. As the single head of a household with one child, you may earn up to $39,296. If you have three or more children, you can earn $47,955 or less. This credit is also one of the few that is refundable, which means that if the credit reduces your tax liability to zero, any excess credit may be refunded to you.
These benefits are extended to you because the government recognizes the financial burden raising a family as a single parent imposes upon you. Be certain to file as “single, head of household” for maximum allowances. To be prepared to claim these Tax Credits for Single Parents, you should research them and understand what kind of records you need to keep through the year.