Caring for children comes at a cost. These tax breaks can help.

CHICAGO, March 4, 2024 – With tax time right around the corner, parents need a break—a tax break! Consider a recent LendingTree study, which found that the average annual essential cost to raise a child rose 19.3% nationally between 2016 and 2021, the latest year for which complete data was available. According to the study, families are projected to spend $237,482 over 18 years to raise a child. Illinois ranked 19^th in the study, where it’s estimated a family will spend $22,310 annually on raising a child when accounting for expenses like rent, food, child care, apparel, transportation, health insurance premiums, and state tax exemptions or credits.

With that in mind, the Illinois CPA Society suggests parents speak with their CPAs—certified public accountants—to get help maximizing the many tax breaks available to them, like these:

1. Child Tax Credit

   The most common tax credit is the Child Tax Credit, which is worth up to $2,000 per qualifying child or dependent who has a valid U.S. Social Security number. Taxpayers qualify for the full amount if all eligibility factors are met and annual income isn’t more than $200,000 (single) or $400,000 (married filing jointly). Parents and guardians with higher incomes may be eligible to claim a partial credit.

2. Child and Dependent Care Credit

   Did you pay someone to care for your child or another qualifying person so you (and your spouse if filing jointly) could work or look for work? If so, you may be able to claim a credit of up to $3,000 (or $6,000 for two or more qualifying individuals) for your child and dependent care expenses. Dependent care expenses such as daycare and day camp (not including overnight camps) for dependents under the age of 13, or dependents of any age who are incapable of self-care and who live with you for more than half of the year, may qualify for this federal credit.

3. Earned Income Tax Credit (EITC)

   The EITC allows qualifying low- and moderate-income workers and families to reduce taxes owed, potentially increasing a tax refund. The credit is based on various factors, such as adjusted gross income (AGI), filing status, dependents, and more, but could be worth up to anywhere from $600 to $7,430 depending on eligibility.

4. State Tax Dependent Credit

   All Illinois taxpayers who qualify for the federal EITC are automatically eligible for the credit on their Illinois tax return. In 2022, legislation was passed to increase the state’s EITC to 20% of the federal credit and expand eligibility to older workers, younger workers, and Individual Taxpayer Identification Number filers.

5. American Opportunity Tax Credit (AOTC)

   The AOTC is a credit for qualified education expenses paid for an eligible student for the first four years of higher education. The maximum annual credit is $2,500 per eligible student, and if the credit brings the amount of tax owed to zero, 40 percent of any remaining credit amount (up to $1,000) is refundable. To claim the credit, you or a qualified dependent must have received Form 1098-T from an eligible educational institution and must meet the income limits. To claim the full credit, modified adjusted gross income (MAGI) must be $80,000 or less ($160,000 or less if married filing jointly). A reduced credit is available if MAGI exceeds $80,000 but is less than $90,000 (over $160,000 but less than $180,000 if married filing jointly). Taxpayers with MAGI exceeding $90,000 ($180,000 if married filing jointly) are ineligible.

6. Student Loan Interest Deduction
   As the moratorium on student loan interest accruing has ended, taxpayers incurring interest expenses should be mindful of the student loan interest deduction. Eligible taxpayers may be able to deduct the lesser of $2,500 or the amount of interest actually paid during the year. The deduction is gradually reduced for taxpayers with MAGI exceeding $75,000 or $155,000 (married filing jointly) and eventually phases out when MAGI reaches $90,000 or $185,000 (married filing jointly).

Every year, the costs of raising a child and caring for loved ones increase. Fortunately, there are many tax credits and benefits available to help alleviate some of the financial burden. While it’s not always easy to find and claim all the credits and deductions available, know that a CPA can help. A CPA can strategically prepare and file your tax return to ensure all eligible credits and deductions are maximized. The Illinois CPA Society’s free “Find a CPA” directory can help you find the trusted, strategic advisor that’s right for you and your family based on location, types of services needed, and languages spoken. Find your CPA at www.icpas.org/findacpa.