If you have children, one or more of these tax credits and deductions could help your family reduce the amount of tax owed. Let’s take a look:
1. Child Tax Credit
Generally, taxpayers can claim the Child Tax Credit for each qualifying child under the age of 17. The maximum credit is $2,000 per child. Taxpayers who get less than the full amount of the credit may qualify for the Additional Child Tax Credit (see below). The refundable portion of the credit is $1,400 so that even if taxpayers do not owe any tax, they can still claim the credit. A $500 nonrefundable credit is also available for dependents who do not qualify for the Child Tax Credit (e.g., dependents age 17 and older).
2. Child and Dependent Care Credit
If you pay someone to take care of your dependent to work or look for work, you may qualify for a credit of up to $1,050 or 35 percent of $3,000 of eligible expenses. For two or more qualifying dependents, you can claim up to 35 percent of $6,000 (or $2,100) of eligible expenses. The credit percentage is reduced for higher-income earners but not below 20 percent, regardless of the amount of adjusted gross income. This tax credit is nonrefundable.
Even if you don’t have dependent children if you care for an elderly relative and can claim them as a dependent, you might be able to take the Child and Dependent Care Credit. Please call for details.
3. Earned Income Tax Credit
Taxpayers who worked but earned less than $56,844 in 2020 could qualify for this credit, which is worth up to $$6,660 in 2020. Taxpayers may qualify with or without children.
Due to the pandemic, taxpayers can use their 2019 earned income to figure your EITC, if their 2019 earned income was more than their 2020 earned income.
4. Additional Child Tax Credit
This refundable tax credit is for certain individual taxpayers for whom the Child Tax Credit exceeds the amount of income tax owed. The credit is worth $1,400 and may give you a refund even if you do not owe any tax.
Due to the pandemic, taxpayers may be able to use their 2019 earned income to figure this credit if their 2019 earned income is more than your 2020 earned income.
5. Adoption Credit.
It is possible to claim a tax credit for certain costs paid to adopt a child. For details, see Form 8839, Qualified Adoption Expenses.
6. Education Tax Credits
An education credit can help with higher education costs. Two credits are available: the American Opportunity Tax Credit and the Lifetime Learning Credit. These credits may reduce the amount of tax owed. If the credit cuts a taxpayer’s tax to less than zero, it could mean a refund. Taxpayers may qualify even if they owe no tax. Complete Form 8863, Education Credits, and file a return to claim these credits.
7. Student Loan Interest
Taxpayers may be able to deduct interest paid on a qualified student loan. They can claim this benefit even if they do not itemize deductions. If you’re not sure if the interest you paid on a student or educational loan is deductible, don’t hesitate to call.
If you have any questions about tax credits and deductions that could benefit your tax situation, please call (212) 279-9800 or email the office.