Being a stay-at-home parent might be a dream come true for some, while others have been forced into the arrangement by the COVID-19 pandemic. In either case, Uncle Sam has your back. The Tax Policy Center indicates that 92 percent of families will receive a Child Tax Credit of more than $4,300 in 2021.
Tax Rules for Dependents
Your children can only help you at tax time if they qualify as your dependents, and the IRS has four basic rules for this:
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- Your child must be your biological child, adopted child, a foster child or your stepchild. Your siblings, nieces, nephews and grandchildren qualify, too.
- They can be no older than age 19 as of the last day of the tax year, or age 24 if they're still full-time students. There are no age rules for children who are permanently disabled.
- They must live with you for more than half the year.
- They can't provide more than half their own support.
The IRS provides an online calculator to help you figure out if your child qualifies. It takes about 15 minutes to complete.
A Tax Credit for Each of Your Children
The Child Tax Credit is worth $3,600 for each of your children under age six in tax year 2021, or $3,000 per child if they're older, up to age 17. These amounts are in response to the coronavirus pandemic. They drop back to $2,000 per child age 16 or younger in 2022.
This tax credit is refundable, at least for 2021. It can reduce your tax bill to zero, and the government will send you a check for any balance that's leftover. It's refundable up to $1,400 per child beginning in 2022. Some income limits for parents apply.
The Credit for Other Dependents
The Tax Credit for Other Dependents can come to the rescue if your child has "aged out" of qualifying for the Child Tax Credit. You might still be supporting your 19-year-old who's looking for a job. That can be worth up to $500 in 2021, although this credit isn't refundable.
Qualifying as Head of Household
Being a parent can qualify you for the advantageous head of household filing status, too, whether you work or stay at home. Technically, you must be "considered unmarried" to qualify. This means that you didn't live with your spouse at any point – even for one day – during the last six months of the tax year.
Qualifying as head of household gets you a higher standard deduction. The head of household standard deduction is $18,650 for the 2020 tax year. It goes up to $18,800 in 2021. You'd only get $12,400 in 2020 if you filed using the single filing status, or $12,550 in 2021. The tax brackets for head of household filers are more generous as well.
You must pay more than half your household's expenses for the year to qualify, and your child must generally have lived with you for more than half the year.
A Tax Credit If You Look for a Job
The IRS provides another tax break for parents who aren't staying at home by choice. Maybe you're looking for a job. This might qualify you for the Child and Dependent Care Credit, which will reimburse you for a portion of what you spend to have someone care for your children while you're out there pounding the pavement.
The credit works out to up to $3,000 for what you spend on one child, or $6,000 for two or more children. Your qualifying children must be under age 13. The IRS takes the position that they can care for themselves perfectly well if they're older than this. But they'll also qualify if they're physically or mentally impaired to the point where they're not capable of self-care. Your care provider can't be your spouse if you're married, the other parent of your children or another dependent you can claim on your tax return.
More generous rules apply to the 2021 tax year, again in response to the pandemic.
- Tax Policy Center: What Is the Child Tax Credit?
- IRS: Whom May I Claim as a Dependent?
- Campaign for Working Families: Tax Tips for Single Parents
- IRS: Publication 501, Dependents, Standard Deduction, and Filing Information
- IRS: Topic No. 602 Child and Dependent Care Credit
- IRS: IRS Offers Overview of Tax Provisions in American Rescue Plan
- Tax Foundation: 2021 Tax Brackets
- IRS: IRS Provides Tax Inflation Adjustments for Tax Year 2021