Children and Education

Child Tax Credit

For 2011, the Child Tax Credit is worth $1,000 for each qualifying child who is under age 17 at the end of the calendar year and who qualifies as a dependent. The credit is in addition to the child’s dependency exemption. Be aware that this credit will phase out for higher income taxpayers.

Dependent Care Credit

If you are a parent who must pay for the care of a dependent under age 13, whom you also claim as a dependent, you may be eligible for a tax credit between 20% and 35% of qualifying expenses. You must have earned income to receive the credit.

The credit, which is determined by your AGI, is not restricted to child-related care costs. If you pay someone to look after an incapacitated spouse or dependent of any age, such as a parent or disabled family member, you may also be eligible for this tax break. The maximum amount of expenses on which the credit can be claimed is $3,000 for the care of one qualified dependent and $6,000 for the care of two or more. Thus, the maximum credit allowed in 2011 is $1,050 if you have one qualified dependent and $2,100 if you have two or more qualified dependents.

The Dependent Care Credit is reduced by the value of qualifying day care provided by your employer under a written, non-discriminatory plan, which generally is not taxable up to $5,000 ($2,500 if married filing separately).

The American Opportunity Tax Credit

The American Opportunity Tax Credit is available to each eligible student and for the first four years of college or other postsecondary school that lead to a degree, certificate or other recognized educational credential. The maximum credit is $2,500 per student for each year and 40% of the credit is refundable– that is, it can reduce your liability below zero.

The credit applies to 100% of the first $2,000 of costs and 25% of the next $2,000 of costs. This means you must spend at least $4,000 to obtain the maximum credit of $2,500.

Similar to the Child Tax Credit, this credit phases out for higher income taxpayers. If modified AGI is less than or equal to the $160,000 and $80,000 thresholds, the full credit can be claimed. However, if it is equal to or greater than the $180,000 and $90,000 thresholds, the credit is not available.

The credit is also allowed against the AMT.

Information is current as of Monday, Dec. 12, 2011.

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This article was provided by the American Institute of Certified Public Accountants (AICPA).