Tax Year 2021 Dependent Tax Credits and Deductions

Federal tax breaks for taxpayers who claim dependents, in short dependent tax credits and deductions are available to take advantage. These dependent tax credits or breaks may reduce the amount of federal income tax owed, and some even increase the refund. PriorTax has helped me find all the dependent tax credits and deductions that might be applicable to my situation. There is no limit to the number of dependents you can claim, but each one must meet IRS requirements to qualify.

Tax Breaks for Dependents

The child tax credit is a federal break given to taxpayers who claim dependents on their return. With the CTC, you may be eligible for up to $3,600 in savings per qualifying dependent. Again, there is no limit to the number of children you can claim, but each one must meet IRS requirements in order to qualify for this credit. If your dependent is over the age of 17 or doesn’t qualify for other reasons, you may still be eligible for a tax credit worth $500. This dependent tax credit is not refundable.

Child Care Tax Credit and Dependent Tax Credit

One of the many credits and deductions that is often overlooked is the Child and Dependent Care Tax Credit. This credit is available to parents who don’t stay at home to take care of the kids. They may be eligible for a tax credit worth up to 50% of their qualifying expenses.

Earned Income Tax Credit (EITC)

The EITC is a tax benefit for taxpayers with low- to moderate-income levels. You must have earned income to claim the credit. The amount of credit you could get depends on your AGI and the number of dependents you have. For example, a married couple earning less than $57,414 and with three dependents can qualify for up to $6,728 in tax credit. Watch out for taxes when you file your return since the IRS may require you to repay some of the EITC you were given if you had too much income or didn’t have any qualifying children.

Education Tax Credits

Education tax credit is generally a refundable income tax credit that can be claimed by certain taxpayers who, in the preceding year, paid qualified education expenses of higher education. The American Opportunity Tax Credit (AOTC) is worth up to $2,500 per year and is refundable for up to $1,000 for students who qualify. There are also two other credits for college education: The Lifetime Learning Credit and the Tuition and Fees Deduction. The Lifetime Learning Credit is worth up to $2,000 and may be used by those who don’t qualify for the AOTC. The Tuition and Fees Deduction is worth up to $4,000 and only applies to undergraduate coursework.

Student Loan Interest Deduction

The IRS provides relief for qualified student loan interest. But what is an eligible student loan, and what type of relief can it get? Let’s find out. Student loans are not tax-deductible when repaying student loans are a hassle, or so I’ve heard. Luckily, there is a way for you to deduct the interest you’ve paid on them. If your dependent is a college student and you meet other requirements, then you can claim up to $2,500 for the interest paid. If a student loan is qualified, interest paid on it can be in addition to one of the education credits.

Health Insurance Premium Tax Deduction

If you’re self employed and paying the insurance, you can deduct your health insurance premiums under section 280E US Internal Revenue Code on your individual income tax return. Health insurance premiums count as an itemized tax deduction, which means that they reduce the amount of taxable income. The dependent tax deduction can’t exceed the amount of income after all required deductions have been made.

This entry was posted on Monday, April 25th, 2022 at 9:49 pm and is filed under Tax Deductions and Credits, Tax Tips and Tricks, Tax Year 2021. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.