Family and income-based tax credits

Child and dependent care credit

Taxpayers who are gainfully employed are allowed a nonrefundable tax credit for caretaking expenses for their qualifying dependent under age 13, or a physically or mentally incapacitated dependent or spouse who lived with the taxpayer for more than half the tax year. Qualifying expenses include, but are not limited to: babysitting, housekeeping, nursing, after-school programs, and day camp. Overnight camp doesn’t qualify, and neither does tuition for kindergarten or a higher grade. Qualifying expenses are limited to $3,000 for one qualifying person and $6,000 for 2 or more qualifying persons. They also can’t exceed the taxpayer’s earned income or, if the taxpayer is married at the end of the year, the smaller of the two spouses’ earned incomes. A spouse who is a full-time student or unable to care for themselves is treated as earning $250 a month ($500 if there are two or more qualifying persons). Taxpayers must provide the employer identifying number of the providers if an entity, or social security number or ITIN if an individual to get the credit. Payments don’t count if they’re made to the taxpayer’s spouse, the parent of a qualifying child under 13, the taxpayer’s own child under age 19, or anyone the taxpayer or spouse can claim as a dependent; any other relative can be the paid provider. The credit rate is 35% for adjusted gross incomes of $15,000 or less and falls by 1 percentage point for each $2,000 (or part of $2,000) of AGI above $15,000, to 20% for AGI over $43,000. Excluded employer-provided dependent care benefits reduce the $3,000/$6,000 dollar limit on qualifying expenses. To apply for the Child and Dependent Care Credit, complete Form 2441 on the IRS website.

Definitions

Nonrefundable tax credit

A tax credit that can reduce a taxpayer’s tax liability to zero but cannot result in a refund. If the credit exceeds the amount of tax owed, the excess is forfeited.

Refundable tax credit

A tax credit that can reduce a taxpayer’s tax liability below zero, with any remaining credit amount paid out to the taxpayer as a refund.

Child credit

The federal child tax credit is $2,200 per qualifying child under 17. The credit is applied against your tax liability. Part of any amount that exceeds tax liability may be refundable as the additional child tax credit. The refundable credit is 15% of your earned income over $2,500, up to the maximum $1,700 refundable limit per child. The credit begins phasing out at $200,000 of modified AGI ($400,000 if married filing jointly), reducing by $50 for each $1,000 (or part of $1,000) of MAGI over the threshold.

A qualifying child for the Child Tax Credit must meet all of the following:

• Be under age 17 at the end of the tax year.
• Be a son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of one of these (for example, a grandchild, niece, or nephew), who lived with the taxpayer for more than half the year and did not provide more than half of his or her own support for the tax year.
• Be claimed as the taxpayer’s dependent, and be a U.S. citizen, U.S. national, or U.S. resident alien.
• Have a Social Security number valid for employment, issued before the due date of the tax return (including extensions) - and, beginning with the 2025 tax return, the taxpayer must also have such a number (on a joint return, only one spouse needs one; the other spouse must have an SSN or ITIN issued by the return due date).

For more information, visit the IRS page on the Child Tax Credit.

Other dependent credit

The Credit for Other Dependents is a nonrefundable tax credit of up to $500 per qualifying person, designed for dependents who do not qualify for the Child Tax Credit. It applies to children aged 17 or older, college students, or elderly parents supported by the taxpayer. The credit begins phasing out at $200,000 ($400,000 married filing jointly). The dependent must be a U.S. citizen, national, or resident alien, and possess a Social Security number (SSN) or Individual Taxpayer Identification Number (ITIN).

Definitions

ITIN (Individual Taxpayer Identification Number)

A tax processing number issued by the IRS to individuals who are not eligible for a Social Security Number, including certain nonresident and resident aliens, their spouses, and dependents. It is used solely for federal tax reporting purposes and does not authorize work in the U.S.

Earned income credit

The Earned Income Credit (EITC) is an “earned” income credit, meaning a taxpayer must have income from employment or self-employment to qualify. To be eligible for the EITC, a taxpayer must have a low-to-moderate earned income and meet several other requirements related to filing status, citizenship, residency, and investment income. The income limits vary depending upon filing status and the number of qualifying children that are claimed. A maximum of three (3) qualifying children can get the EIC for a taxpayer.

Definitions

Earned income

Income from wages, salaries, tips, and net earnings from self-employment. It does not include investment income, Social Security benefits, unemployment compensation, alimony, or other passive sources.

EITC (Earned Income Tax Credit)

A refundable federal tax credit for low-to-moderate income working individuals and families. The credit amount varies based on earned income, filing status, and number of qualifying children, and can result in a refund even if no tax is owed.

General rules

• You must have earned income during the tax year in question.
• You generally cannot claim the EIC if your status is married filing separately, unless you meet the special rule for separated spouses (a qualifying child lived with you more than half the year and you lived apart from your spouse for the last 6 months of the year or are legally separated).
• You, and your spouse if filing a joint return, must have a valid Social Security Number; an ITIN doesn’t qualify. A qualifying child needs a valid SSN for you to claim a higher EIC based on that child, but a child without one doesn’t bar the EIC: you may still claim the self-only EIC (the amount for a taxpayer with no qualifying child) if you are otherwise eligible.
• Your 2025 investment income must be $11,950 or less.
• To claim the EIC on your U.S. tax return, your home (and your spouse’s, if filing a joint return) must have been in the United States for more than half the year. If you claim the EIC with a qualifying child, the child must have lived with you in the United States for more than half the year. Special rules apply to ministers, clergy members, and military personnel stationed outside the United States; see the IRS military and clergy rules for the Earned Income Tax Credit for guidance.
• Your earned income and AGI must each fall below the IRS limit for your filing status and number of qualifying children, and the limits are higher for married filing jointly. For 2025 these range from $19,104 (no qualifying children, single/head of household) to $68,675 (three or more qualifying children, married filing jointly); see the EITC income limit table or IRS Publication 596 for the exact figures.

Rules for taxpayers with children

• Using a status other than Married Filing Separately. A special rule may apply for married individuals who live apart from their spouse for the last six months of the year.
• Be a U.S. citizen or resident alien for the entire tax year. If you were a nonresident alien for any part of the year, you may still qualify if you are married to a U.S. citizen or resident and file a joint return.
• Cannot file Form 2555: You cannot claim the EITC if you are also filing to exclude foreign earned income. (This rule and the citizenship rule above apply to every EITC claimant, with or without children.)
• A qualifying child cannot be claimed for the EITC by more than one person.
• A qualifying child must be your son, daughter, stepchild, foster child, brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them (such as a grandchild, niece, or nephew). At the end of the year, the child must be under age 19, or under age 24 and a full-time student, and in either case younger than you (or your spouse, if filing jointly). A child who is permanently and totally disabled meets the age test at any age. The child also can’t file a joint return for the year, unless the return is filed only to claim a refund of income tax withheld or estimated tax paid. Unlike the dependency tests for a qualifying child, the EIC has no support test, so it doesn’t matter who provided the child’s support.

Additional rules for taxpayers without children

If you do not have a qualifying child, you must meet all the general rules plus the following:

• You must be at least 25 but under 65 at the end of the tax year.
• You cannot be claimed as a dependent or a qualifying child on another taxpayer’s return.
• The taxpayer must have lived in the United States for more than half the tax year.

Unearned income does not count toward your earned income for the Earned Income Tax Credit (EITC), and if it is too high, it can disqualify you from receiving the credit entirely.

Definitions

Unearned income

Income derived from sources other than employment or self-employment, such as interest, dividends, capital gains, Social Security benefits, pension distributions, and unemployment compensation. Unearned income is not earned income for the EITC; investment income (interest, dividends, capital gains, royalties and passive income) over $11,950 for 2025 disqualifies a taxpayer.

For detailed information:

• Schedule EIC (Form 1040): Used to claim the Earned Income Credit with qualifying children
• IRS Publication 596: Earned Income Credit: Comprehensive guide to EITC eligibility rules and calculations