Credits and deductions lessen the tax burden of individuals by reducing the amount of income that taxes must be paid on. Multiple tax credits exist for parents or guardians of qualifying children, as defined by the Internal Revenue Service, or IRS. There are also a variety of credits available for students who meet specific qualifications.
Dependents and Child Tax Credit
Parents and guardians can claim a qualifying child as a dependent on their tax return to receive a $3,650 credit, as of January 2010. You can also claim a child tax credit valued at up to $1,000 for each qualifying child. A "qualifying child" must pass the IRS dependent taxpayer test, joint return test, citizenship test, relationship test, age test, residency test and support test. IRS Publication 972 outlines each test and provides worksheets to help you determine if your child qualifies.
Child and Dependent Care Credit
You are eligible for the Child and Dependent Care Credit if you paid for childcare for a child age 12 or younger and required this service while you worked or searched for employment. Keep in mind that eligible payments cannot go to your spouse or to a child of the household who is age 18 or under. This credit extends to 35% of qualifying expenses, up to a limit of $3,000 for one child or $6,000 for two children.
The American Opportunity Credit
The American Opportunity credit pays up to $2,500 of qualifying education expenses. It is only available for the first four years of post-secondary education and a maximum of four years per eligible student. A student must be enrolled in an undergraduate degree program or a recognized educational credential course. You must adhere to Modified Adjusted Gross Income, or MAGI, limits of $180,000 if married and filing jointly, or $90,000 if single and head of household, when claiming this credit. Up to 40 percent of this credit is refunded if the credit exceeds your tax owed.
The Hope Credit
The Hope Credit was largely replaced by the American Opportunity Credit for tax years 2009 and 2010, as it provided a less substantial credit. However, in 2009 a key exception was granted to students in Midwestern disaster areas, where the Hope Credit had a $3,600 maximum versus the $1,800 credit limit typically applied. The credit has a two-year limit and requires that students be in their first two years of post-secondary education when applying. MAGI limits of $120,000 if married and filing jointly, or $60,000 if single and head of household, apply to the Hope Credit. This credit is only applied to tax owed. No tax refund is sent for a Hope Credit balance.
The Lifetime Learning Credit
The Lifetime Learning Credit has no limitations on the number of years the credit can be claimed for an individual, and it entitles each qualifying student to a credit of up to $2,000 for qualified education expenses. A MAGI limit of $120,000 if married and filing jointly, or $60,000 if single and head of household, applies to this credit. The Lifetime Learning Credit is only applied to tax owed on your return. No refund is sent for a credit balance.
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