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 qualified dependent under the age 13 or a physically or mentally incapacitated dependent or spouse for who maintained the household at the end of the tax year. Qualified expenses include but not limited to: babysitting, housekeeping, nursing, after-school programs, and day camp. The credit is limited to $3,000 for one qualifying child and $6,000 for 2 or more qualifying children. 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. Credit is maxed at 35% for adjusted gross incomes up to $43,000 and 20%% above $43,000. Employer-provided benefits reduce the amount of income eligible for the credit. 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. Any amount that exceeds tax liability is refundable. The refundable credit is based on 15% of your earned income of $2,500 up to the maximum $1,700 refundable limit. A qualifying child for the child tax credit are as follows: Under age 17 at the end of the tax year. 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 and did not provide more than half of his or her own support for the tax year. Beginning with the 2025 tax return, the taxpayer (and spouse, if filing jointly) must have a Social Security Number that is valid for employment and is issued before the due date of your tax return (including extensions) and their children who are being claimed must have Social security numbers to be eligible for the child credit. 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 cannot claim the EIC if your status is married filing separately.
• You, your spouse, and any qualifying children must all have valid Social Security Numbers.
• Your 2025 investment income must be $3,650 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 have a child and are interested in the child tax credit, 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 adjusted gross income must be no more than between $75,000 to $150,000, depending on specifics.

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.
• A qualifying child cannot be claimed for the EITC by more than one person.

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.
• Child cannot be claimed as a dependent or qualifying child on another person’s tax 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. The EITC is specifically designed to help low-to-moderate-income working individuals and families.

How unearned income affects the earned income credit

Sources of unearned income, such as unemployment compensation, interest, dividends, or Social Security, do not qualify for the credit.

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 does not count toward EITC eligibility and may disqualify a taxpayer if it exceeds the annual threshold.

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