Tax Breaks for Families with Children

The American Taxpayer Relief Act provided some good news for families.  The Act extended, or made permanent, a number of tax breaks for families with children.

Larger Child Tax Credit Made Permanent. The $1,000 maximum credit for each eligible under-age-17 child was made permanent. Without the Act, the maximum credit would have dropped to only $500 for 2013 and beyond. In addition, provisions that allow the child credit to be refundable for more households were extended through 2017.

Favorable Child and Dependent Care Tax Credit Rules Made Permanent. Thanks to the Bush era tax cut legislation, most parents have been able to claim a credit of up to $600 for costs to care for one under-age-13 child, or up to $1,200 for costs to care for two or more under-age-13 kids, so the parents can work. Lower-income parents have been able to claim larger credits of up to $1,050 and $2,100, respectively. The Act makes these credit amounts permanent for 2013 and beyond (without the Act, they would have dropped to $480 and $960 for most parents; $720 and $1,440 for lower-income parents).

Favorable Earned Income Tax Credit Extended. Legislation enacted in previous years increased the earned income credit for families with three or more qualifying children and allowed married joint-filing couples to earn more without having their credits reduced. These changes, which help lower-income families, were extended by the Act through 2017.

Liberalized Tax Breaks for Adoptive Parents Made Permanent. The Bush tax cut package included a major liberalization of the adoption tax credit and also established tax-free employer adoption assistance payments. These taxpayer-friendly provisions were scheduled to expire at the end of 2012. The credit would have been halved and limited to special needs children only. Tax-free adoption assistance payments from employers would have disappeared. The Act permanently extends the more-favorable Bush era rules.