3 Tax Mistakes That Can Cost Parents Thousands

When you're doing your taxes, finding every deduction and claiming every applicable credit is crucial to maximizing your refund or lowering your taxable income. Thankfully for parents, there are plenty of ways to do so.

However, overlooking some significant tax opportunities can cost you thousands of dollars. Here are a few tax mistakes you should avoid to ensure you're filing your return correctly and getting all the tax credits you deserve.

1. Not taking the Child Tax Credit

The Child Tax Credit is important for parents because it allows you to claim up to $2,000 per child in your household under the age of 17.

Married parents filing jointly can claim the total amount per eligible child if their household income isn't more than $400,000. For single parents, the income threshold for receiving the full credit is $200,000.

The good news is that the tax credit is also partially refundable, up to $1,600 per child. So let's assume you have one child, receive the Child Tax Credit, and owe $0 in taxes. In this scenario, you'll receive a refund of $1,600 from the IRS.

2. Forgetting about the Child and Dependent Care Credit

If you paid for child care for any of your children or dependents while you worked or were looking for work, you may be eligible for the Child and Dependent Care Credit.

The maximum credit amount is $3,000 for one child or up to $6,000 for two children. The total amount you receive is determined by how much you spent on child care in 2023 and what your income is. For 2023, you may be able to claim between 20% and 35% of child care expenses, based on how much you earn.

For example, let's assume you have two kids, your household income is $75,000, and you paid $5,000 in child care expenses in 2023. In this scenario, the IRS will allow you to claim up to 20% of your child care expenses, giving you a tax credit of $1,000.

3. Not claiming the Earned Income Tax Credit

The Earned Income Credit (EITC) is for low to moderate-income taxpayers, and you don't need to have a child to qualify for it.

For parents with several kids, it's certainly worth looking into. For 2023, a parent with three or more children may qualify for the credit if they're single and earning less than $56,838 or married filing jointly with a household income of less than $63,698.

The amount you receive from the EITC will vary depending on your salary. For example, a married couple filing jointly with three kids and a household income of $50,000 may receive a $2,816 credit, while a single parent with an income of $50,000 and three children could receive $1,435.

You can use the IRS's EITC assistant to determine your eligibility for the credit. The Center on Budget and Policy Priorities also has a helpful EITC calculator that can estimate how much you might receive.

The bottom line

It's not easy being a parent and paying for all the additional expenses that come with kids, but these tax credits can help offset some of the costs. If you use tax prep software to file your taxes, many of the programs will guide you through the steps to ensure you get all the credits you qualify for.