Parents also get some relief from the tax code for child care costs, which can be exorbitant. (Sending your infant to a daycare center in Illinois, for instance, costs slightly more than sending your 19-year-old to a public university, according to Child Care Aware of America.)
With children under 13, you have two possible ways to catch a break. You may be able to sign up for a dependent-care flexible spending account at work. That lets you use pre-tax dollars to pay for up to $5,000 of care, yielding a savings of $1,250 for someone in the 25% tax bracket.
With or without an FSA, you can take the child care tax credit—worth 20% to 35%, depending on your income, of up to $3,000 you spend on care for one kid, $6,000 for two or more. A married couple filing jointly with an adjusted gross income over $43,000 in 2015 can reduce their tax hit by 20% of child care bills up to these amounts, says Ganoe—a maximum of $1,200 for families with two or more kids.
If you pay for child care expenses with your FSA, however, you can claim a credit only for those costs that aren’t covered by your FSA.
There are other important tax breaks that parents should understand. Families that adopt a child can take advantage of a sizable tax credit. And as your children get older, you’re entitled to a $2,000 deduction for tuition, although this also is subject to income restrictions (married couples filing jointly can’t take advantage if their modified adjusted gross income is above $160,000).
Fortunately, the Tepper family’s taxes are relatively simple this year—and our tax software program ought to prompt us to take any of the tax breaks we qualify for. A more complicated tax future will begin to kick in as we add more children and property, but there’s a bright side: More complex taxes tend to accompany more income and more assets.
More Tax Season Tips from Money:
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Tax-Prep Help This Filing Season