How Your Children Affect Your Taxes

Children can lower your taxes significantly. For 2025 returns, the child tax credit is up to $2,200 per child under 17, and families may also qualify for child care, education and earned income credits.

By the James Family Tax team

Having children can have a profound impact on every aspect of your life — including your finances.

Raising children requires a lot of time, effort, and attention. As such, it’s understandable that many parents overlook how their children can impact their tax returns. However, considering how expensive raising a child is, it’s important for parents to understand how child tax benefits can help them save money come tax season.

Depending on your income, how many qualifying dependents you have, your filing status, and other factors, you may be eligible for a variety of tax credits that can reduce your tax burden and increase your refund.

Qualifying Child Test

Before you can claim any child-related tax benefits, you first need to make sure that your children qualify as dependents.

For you to claim your child as a dependent, your child needs to meet the IRS’ qualifying child test.

To pass this test, all of the following criteria must be met:

● Relationship: The child must be your son, daughter, adopted child, stepchild, foster child, brother, sister, half-brother, half-sister, stepbrother, step-sister, or a descendant of any of them.

● Age: Your child must be 19 and younger than you at the end of the tax year. Exceptions are made for full-time students, who qualify if they are under 24 and younger than you at the end of the filing year. There are no age requirements for children that are permanently and totally disabled.

● Residency: Your child must live with you for more than half of the tax year.

● Joint Return: Qualifying children cannot file a joint return unless they are filing only to claim a refund for withheld taxes.

Finally, for a child to qualify as a dependent, no one else can claim them as a dependent, and the child cannot have provided more than half of their own support in a single tax year.

If you need help determining whether or not your children qualify as dependents, a professional tax service can help you identify which children qualify and what tax credits you are eligible for. You can also use the IRS’ ‘Whom May I Claim as a Dependent?’

test to check for yourself.

Tax Benefits

The Tax Cuts and Jobs Act that was passed in 2017 made some pretty major changes to the US tax code, including getting rid of child-related tax deductions and introducing several tax credits that parents may be eligible for.

How Your Children Affect Your Taxes

Child Tax Credit

Parents who claim at least one child as a dependent may be eligible to claim the child tax credit. The maximum child tax credit is $2,200 per qualifying child for 2025, with up to $1,700 refundable; however, it’s important to keep in mind that, while a child only needs to be under 19 to qualify as a dependent, they must be under 17 for this tax credit to be available. If 17 or over they may qualify for the other dependent tax credit of $500.

The child tax credit begins to phase out for single parents who make more than $200,000 or $400,000 for married couples.

Child and Dependent Care Credit

In addition to the child tax credit, eligible taxpayers can claim the child and dependent care credit to help offset the costs of child care.

Eligible taxpayers include parents who pay someone to take care of their child, who must be under age 13, while they are at work or looking for work. Married couples must file jointly to claim this credit.

The maximum child and dependent care credit is $3,000 for one qualifying child or $6,000 for two or more qualifying children.

Earned Income Tax Credit

The earned income tax credit (EIC) is a tax benefit aimed at workers who have a low-to-moderate income.

The requirements for this tax credit depend on your marital status and number of children. For example, a single parent with one child must make $41,094 per year or less (2019). Meanwhile, a married couple filing jointly with one child needs to make $46,884 or less (2019) to claim this tax credit. Visit this page to learn more about income requirements for the earned income tax credit.

Depending on your circumstances, this tax credit can be worth more than $8,000 for 2026. It’s also refundable, meaning you’ll receive the difference as a tax refund if your tax credit is more than what you owe.

Adoption Tax Credit

There is also an adoption tax credit to help parents offset the expenses of adopting a child.

Qualified adoption expenses include:

● Reasonable and necessary adoption fees.

● Court and attorney fees.

● Travel expenses.

● Other expenses that are directly related to the adoption of a child.

For the 2026 tax year, the maximum adoption credit is $17,670, and up to $5,120 of it is now refundable.

Tax Credits for Education

The American opportunity tax credit (AOTC) and the lifetime learning credit (LLC) both offer ways to help parents cover their children’s college expenses.

American Opportunity Tax Credit

The AOTC is available to help eligible students cover expenses for the first four years of higher education.

To qualify, students must meet the following requirements:

● They must be pursuing a degree or other recognized education credential.

● Students must be enrolled at least half time for one academic period in the tax year.

● Students must not have completed the first four years of higher education.

● Students cannot have claimed the AOTC or the Hope credit for more than four years.

● The student cannot have a felony drug conviction.

The AOTC covers up to $2,000 worth of expenses for each eligible student and 25% of the next $2,000, resulting in a maximum credit of $2,500 per year.

Lifetime Learning Credit

The LLC is a little bit more flexible than the AOTC as there is no limit on the number of years it can be claimed, and it can be used to pay for undergraduate, graduate, and professional degree courses.

To qualify, students must:

● Be enrolled at an eligible educational institution.

● Be taking courses to get a degree, improve job skills, or get another recognized education credential.

● Be enrolled for at least one academic period in the tax year.

The LLC is worth up to $2,000 per tax return and is gradually phased out as your income increases.

Reduce Your Tax Liability & Maximize Your Refund

Having children can have a significant impact on your yearly tax return, but unfortunately, many parents aren’t taking advantage of all of the tax credits and other benefits that are available to them.

At James Family Tax, we have years of experience working with families to help them understand how their jobs, marital status, children, and other major life factors affect their taxes. We’ll help you identify which tax credits you may be eligible for so that you can reduce your tax burden by as much as possible.

Contact James Family Tax today to make an appointment and see how simple tax season can be.

Tips for New Parents

Apply for your baby’s Social Security number right away. You need it to claim the child tax credit.
Update your W-4 so your withholding reflects your new dependent.
Ask about a dependent care FSA through your employer, and keep every child care receipt.

How James Family Tax Can Help

Want a professional to handle your return? Our Tax Family is here year-round at our San Antonio and Schertz offices.

Book an appointment at our San Antonio or Schertz office, or call (210) 864-1788.