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Marc A. Hebert's Money Sense: Credits can help relieve income tax burden for families

January 12. 2018 8:08PM

Would your family like some help paying your federal income taxes? Tax credits might just do the trick. Credits directly reduce your tax liability, and some are even refundable. This means if your tax liability is reduced to zero, and there is still some credit left, all or a portion of the balance may be refunded. Nonrefundable credits are claimed before refundable credits.

Here are a few to keep in mind while preparing your tax return:

Child tax credit

This credit is for taxpayers with a child who both meets a relationship test and is younger than 17. It can grant as much as $1,000 per eligible child and is dependent on your adjusted gross income level. A portion of the child tax credit is refundable for up to 15 percent of your earned income in excess of $3,000, up to the per-child credit amount. Taxpayers with three or more children may use a different calculation if the refund is greater. For more information, see IRS Publication 972, Child Tax Credit and IRS Form 8812

Child and dependent care expenses

This credit is for taxpayers with dependent children younger than 13 and who incur expenses for child care that allow the taxpayer and spouse, if any, to work. This also could be for expenses for a spouse or dependent who is unable to care for himself or herself. The credit can be up to 35 percent of qualifying expenses or up to $3,000 per child and $6,000 for more than one child. A minimum of 20 percent credit applies. See Form 2441 and IRS Publication 503, Child and Dependent Care Expenses for more details.

Education credits

These are the American opportunity credits and lifetime learning credits, which were designed to help parents and students pay for college. The American opportunity credit provides a maximum amount of $2,500. It is available for the first four years of postsecondary school education for those attending at least half-time.

It is calculated at 100 percent of tuition, fees and course materials for the first $2,000 of expenses and at 25 percent for the second $2,000 in expenses. This credit may be 40 percent refundable.

The lifetime learning credit is equal to 20 percent of the first $10,000 of qualifying expenses, which equates to a maximum of $2,000. This credit can also be used for expenses related to acquiring or improving job skills. There is no requirement of enrollment in a degree program, but enrollment for at least half of a normal full-time workload is required (as occurs with the American opportunity credit). This credit is nonrefundable.

The American opportunity and lifetime learning credits cannot be claimed for the same student's expenses in the same tax year. However, the American opportunity credit can be claimed for one or more qualifying students in a family while the lifetime learning credit is claimed for another student in the same family.

Check out Form 8863 and Publication 970, Tax Benefits for Education, for more details.

Earned income tax credit

This credit was designed to help low- and moderate-income workers and their families. Eligibility for claiming the credit is dependent on your filing status and number of children as well as family income. The IRS has an EITC Assistance section on its website to help you sort through the requirements. They also have Publication 596, Earned Income Credit (EIC) to help you through the requirements.

When deciding if a credit will benefit you, be sure to check for income phaseouts and any other rules that might apply. For more information on these and other tax help for families, see the IRS website or consult your tax adviser.

Marc A. Hebert, M.S., CFP, is a senior member and president of the wealth management and financial planning firm The Harbor Group of Bedford. Email questions to Marc at Your question and his response might appear in a future column.

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