Tax Season Offers New Opportunities for Parents

The increasing cost of raising children in the U.S. has put financial strain on many families. As the tax season approaches, it's important for parents to be aware of potential tax breaks related to childcare expenses. Childcare costs have surged due to various factors, including inflation and the expiration of pandemic aid. A significant number of parents have reported spending substantial amounts on childcare, with some paying as much as $5,000 a month. To assist parents in managing these expenses, there are two tax credits available. The child tax credit aims to provide some relief to families raising children. Although temporarily expanded during the Covid-19 pandemic, this credit expired at the end of 2021. Lawmakers are now considering a bipartisan tax agreement that could potentially increase the maximum refundable tax break for qualifying children. In addition, the child and dependent care tax credit is designed to help working families offset the costs of care for children under 13 and adult dependents. This credit is capped at specific eligible expenses and may be worth up to 35% of those expenses, depending on the family's income. It's important to note that there are certain criteria and limitations for claiming these credits, such as the exclusion of stay-at-home parents from the dependent care tax credit. Additionally, expenses paid through a dependent-care flexible spending account cannot be counted towards the tax credit. As parents navigate the financial responsibilities of raising children, being informed about these tax credits can provide valuable support in managing childcare expenses.