TAX PREP

Tax credits for children, dependents

The Child Tax Credit is worth up to $2,000 per qualifying child and $500 per qualifying dependent for 2018. It is one of three kid-focused federal tax credits that are among the most effective ways to reduce your tax bill.

THE CHILD TAX CREDIT

This offers up to $2,000 per qualifying dependent child 16 or younger at the end of the calendar year.

New in 2018 is a $500 nonrefundable credit for qualifying dependents other than children.

This is a tax credit, which means it reduces your tax bill on a dollar-for-dollar basis. Up to $1,400 of the Child Tax Credit is refundable; that is, it can reduce your tax bill to zero and you might be able to get a refund on anything left over.

You can take full advantage of the credit only if your modified adjusted gross income is under:

• $400,000 for married filing jointly

• $200,000 for everybody else Some of the other child-related eligibility requirements for the Child Tax Credit include:

• You must have provided at least half of the child’s support during the last year, and the child must have lived with you for at least half the year (there are some exceptions to this rule; the IRS has the details at irs.gov/forms-pubs/ about-publication-972).

• The child cannot file a joint return (or file it only to claim a refund).

Most online tax preparation software will lead you through the process and calculate the credits for you.

THE CHILD AND DEPENDENT CARE TAX CREDIT

This credit can get you 20 to 35 percent of up to $3,000 in child care and similar costs for a child under 13, an incapacitated spouse or parent, or another dependent so that you can work (and up to $6,000 of expenses for two or more dependents).

The percentage of allowable expenses decreases for higher-income earners — and therefore the value of the credit decreases — but it never disappears completely.

This credit is not refundable, which means it can reduce your tax bill to zero but you won’t get a refund on anything left over from the credit.

Some states also offer their own versions of this credit for child care and dependent care. They are often simply a percentage of the federal credit, but your state could expand eligibility, adjust the income thresholds or provide other incentives.

How to qualify for the Child and Dependent Care Tax Credit:

• A dependent child must be 12 or younger at the time the child care is provided.

• Spouses and other dependents don’t have an age requirement, but IRS rules say they must have been physically or mentally incapable of self-care and must have lived with you for more than half the year.

• If you’re married, you must file as married filing jointly.

• You must have earned income — money you earned from a job. Investment or dividend income doesn’t count.

• You must provide the care provider’s name, address and Taxpayer Identification Number — either a Social Security number or an Employer Identification Number.

You can’t claim the credit for payments to care providers who are:

• Your spouse

• A parent of the dependent child

• A dependent listed on your tax return

• Your child who is 18 or younger, even if he or she is not listed as a dependent on your return

Keep in mind that qualifying expenses can go beyond physical care and extend to household expenses, such as paying someone to help with cooking and cleaning.

THE EARNED INCOME TAX CREDIT

This credit is specifically designed to benefit working people with low incomes. The table below shows both the maximum credits and the maximum income allowed before losing the benefit.

You have to file a tax return to get this credit, even if you don’t owe tax and are not legally obligated to file a return.

This credit is refundable. So, if you’re due to receive a credit of $5,000 but you owe only $2,000 in taxes, you might get a check for $3,000.

A number of states offer some version of an earned income tax credit for working families, so you might be able to get that credit, too.

Most online tax preparation software will lead you through the process and calculate the credits for you.

— By Ramona Paden, NerdWallet.com