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How Much Does it Cost to Raise a Child?

by Tracey Hrica, EA Dec 04, 2019 | Share

How much does it cost to raise a child? Based on figures from 2015 shown on the infographic below – $233,610!!

Luckily, the U.S. tax code offers a variety of tax breaks for parents. Here’s a look at the most popular ones.

  1. Child Tax Credit: This tax break was expanded under the Tax Cuts and Jobs Act (TCJA). Starting with the 2018 tax year, the new law increased the Child Tax Credit (CTC) from $1,000 to $2,000.

Since it’s a credit, it offers a dollar-for-dollar reduction of any tax the eligible taxpaying parent owes.

Even better, up to $1,400 of the CTC credit is refundable. This means, as the name indicates, that if a taxpayer doesn’t owe any tax before claiming the credit, the filer can receive the refundable amount as a tax refund.

A taxpayer can claim the credit if all of these apply:

  • the child was younger than 17 at the end of the tax year,
  • the taxpayer claims the child as a dependent, and
  • the child lives with the taxpayer for at least six months of the year

To claim the CTC, a family must earn a minimum of $2,500. The credit starts phasing out when earnings reach $200,000 ($400,000 for married filing jointly taxpayers).

  1. Child and Dependent Care Credit: All parents will tell you that one of their biggest expenses is paying for someone to watch after their youngsters while mom and dad are at work. The Child and Dependent Care Credit can help.

This tax break, again a valuable tax credit, covers up to $3,000 spent on care for one child or up to $6,000 for the care costs two or more kids. The actual tax credit you can get is a percent of those costs that is based on your adjusted gross income. So you must do some math to come up with your exact tax credit amount.

  1. Head of Household filing status: Personal situations can affect your tax filing status, so getting it right on your tax return is critical. That’s especially the case when a parent is raising kiddos on his or her own.

Head of household (HoH) status applies in most cases to folks who are not married and take care of the needs of dependents.

HoH’s biggest immediate tax break is that it provides a larger standard deduction than the single filing status. In addition, the income brackets and applicable tax rates for HoH filers usually are more favorable than those in the single or married filing separately categories.

Among the key requirements to be able to file as a household’s head is that you pay during the tax year more than half the cost of keeping up a home for yourself and a qualifying dependent.

  1. Adoption tax help: Uncle Sam also can help when a family grows via adoption. There are two avenues to cover these costs, either the adoption tax credit or via tax-free help from your employer. This benefit is adjusted annually for inflation.

In 2019, parents who adopt can claim a tax credit of up to $14,080 to cover the adoption process’ many costs. That same amount can be provided by the new parents’ employer as a tax-free benefit.

Both the adoption tax credit and income exclusion amounts begin to phase out in 2019 when individuals have modified adjusted gross incomes greater than $211,160. Once the adoptive parents hit MAGI next year of $251,160, they cannot claim the tax-favored adoption assistance.

Depending on the adoption’s cost, you may be able to claim both the tax credit and the exclusion. However, you can’t double dip; that is, you cannot claim both a credit and exclusion for the same adoption expenses.

If you can claim any or all of these tax benefits in connection with your child, great! Considering how much you’ll be shelling out over your youngsters’ lives, take all the help from Uncle Sam that you can get!

About the Author

Tracey Hrica, EA

Tracey Hrica joined the firm in 1995. She is an Enrolled Agent(EA), which enables her to prepare personal and business tax returns and represent clients before the IRS.

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