How Much Is the Dependent Tax Credit?

The phrase “dependent tax credit” does not refer to a single tax benefit but encompasses several federal credits designed to assist taxpayers who financially support others. These credits reduce a taxpayer’s liability on a dollar-for-dollar basis, directly lowering the amount of tax owed.

For the 2024 tax year, the return you will file in early 2025, the available credits are tailored to different types of dependents and circumstances. One credit focuses specifically on qualifying children under a certain age, while another is available for dependents who do not meet those specific age and relationship requirements. A separate credit addresses the costs of care for dependents, which allows taxpayers to work.

The Child Tax Credit (CTC)

The Child Tax Credit (CTC) for the 2024 tax year offers a credit of up to $2,000 per child. This credit is not fully refundable, but a portion can be received as a refund even if no tax is owed through the Additional Child Tax Credit (ACTC). For 2024, the maximum refundable amount is $1,700 per child, calculated as 15% of earned income exceeding $2,500.

To claim the CTC, a child must meet five tests:

• Age: The child must be under age 17 at the end of the tax year.
• Relationship: The child must be your son, daughter, stepchild, eligible foster child, brother, sister, or a descendant of one of these relatives.
• Residency: The child must have lived with you for more than half of the year. Temporary absences for school, vacation, or medical care are counted as time lived at home.
• Support: The child cannot have provided more than half of their own financial support during the year.
• Joint Return: The child cannot file a joint tax return for the year, unless filing only to claim a refund of withheld income tax.

The child must also be a U.S. citizen, U.S. national, or U.S. resident alien and have a Social Security Number valid for employment. The full credit is available to taxpayers with a Modified Adjusted Gross Income (MAGI) of $200,000 or less for single filers and $400,000 or less for married filers, after which the credit amount decreases.

The Credit for Other Dependents (ODC)

For dependents not meeting the criteria for the Child Tax Credit, the Credit for Other Dependents (ODC) is a nonrefundable credit of up to $500 per dependent. The ODC cannot result in a tax refund; it can only reduce a taxpayer’s liability to zero. This credit is for two primary groups of dependents.

The first group includes children who are too old for the CTC, such as a 17-year-old or a full-time college student up to age 23. The second group consists of qualifying relatives, like an elderly parent or sibling, who rely on the taxpayer for support.

A qualifying relative must have a gross income of less than $5,050 for 2024, and the taxpayer must provide more than half of their total support. The income phase-out thresholds are identical to the CTC, with the credit reduced for taxpayers with a MAGI above $200,000 for single filers or $400,000 for joint filers.

The Child and Dependent Care Credit (CDCC)

The Child and Dependent Care Credit (CDCC) is calculated based on money spent on care that allows the taxpayer and their spouse to work or look for work. This credit is nonrefundable for the 2024 tax year.

The credit is a percentage of work-related care expenses, ranging from 20% to 35% based on the taxpayer’s Adjusted Gross Income (AGI). As income rises, the percentage decreases. For 2024, the maximum expenses that can be used for the calculation is $3,000 for one qualifying person and $6,000 for two or more.

A “qualifying person” is a dependent child under age 13 when the care was provided. It can also be a spouse or any other dependent who was physically or mentally incapable of self-care and lived with the taxpayer for more than half the year.

The expenses must be work-related, and the taxpayer (and spouse, if filing jointly) must have earned income during the year. The allowable expenses are generally limited to the lower of the two spouses’ earned incomes.

Information and Forms for Claiming Credits

To claim these credits, you will need the dependent’s full name, date of birth, Social Security Number (SSN), their relationship to you, and the number of months they lived with you. For the Child and Dependent Care Credit, you must also collect the name, address, and Taxpayer Identification Number (TIN) of the care provider, along with the total amount paid.

The primary forms are IRS Schedule 8812, Credits for Qualifying Children and Other Dependents, and Form 2441, Child and Dependent Care Expenses. Schedule 8812 is used to calculate both the Child Tax Credit and the Credit for Other Dependents, while Form 2441 is used for the Child and Dependent Care Credit.

Once completed, these forms must be attached to your main tax return, Form 1040. The calculated credit amount is then transferred to the appropriate line on Form 1040 to reduce your total tax. Tax preparation software streamlines this process, prompting for the necessary information and automatically filling out the correct forms.