When it comes to taxes, most parents want to ensure they are maximizing savings and taking advantage of all potential tax-free income for their children. As we enter 2024, there are several key tax provisions and limits that parents should understand to make the most of their tax situation. This article will break down the essential information you need to know.
Child Tax Credit
One of the most valuable tax credits for families is the Child Tax Credit (CTC), which is worth up to $2,000 per child under age 17. The credit applies to children who are U.S. citizens, permanent residents, or residents of Canada or Mexico.
Up to $1,600 per child is refundable for lower-income families, meaning they can get this portion paid out even if no income tax is owed. There is also an IRS portal for taxpayers to update their number of dependents and eligibility.
When it comes to income limits, the CTC begins phasing out at $400,000 for married couples filing jointly and $200,000 for other filers. So higher income families may not qualify for the full $2,000 credit per child.
Importantly, Congress is considering expanding CTC refundability up to the full $2,000 amount in a bill proposed for 2025. So there is potential for even greater tax-free income for families in the coming years.
Earned Income Tax Credit
Lower-income families can also benefit substantially from the Earned Income Tax Credit (EITC), which gives up to $3,995 for those with at least one qualifying child ().
To qualify for EITC, adjusted gross income and earned income must fall below set thresholds. For 2024, these ranges are:
- $46,560 to $53,120 for singles, heads of household, widows with dependent children
- $52,340 to $59,187 for married joint filers with dependent children
The exact credit amount depends on income, marital status, and number of children. The IRS EITC Assistant helps determine eligibility.
Tax-Free Gift Limits
An often overlooked opportunity is that parents can gift children up to $18,000 per year without owing any gift tax or even having to report the gifts to the IRS. This applies to each child, meaning a married couple with two children could gift up to $72,000 tax-free.
Gifts exceeding the annual exclusion amount are subject to gift and estate tax. But any amounts below $18,000 per child can be freely given to help with expenses like college costs.
Other Key Points for 2024
Here are some other essential things for parents to know about tax rules for their children in 2024:
- Children with significant unearned income (over $2,500) may owe tax at their parents’ rate, under so-called “kiddie tax” rules.
- Free tax filing options are available through IRS partners for those making under $73,000.
- The standard deduction for dependents rises to $1,500 for 2024.
- Parents and children should always use the IRS Withholding Calculator to check tax withholding and avoid penalties.
Conclusion
The Child Tax Credit, EITC, and tax-free gift rules provide parents with ample opportunities to reduce taxes and maximize income for their children. By understanding the specific limits and qualifications, families can take full advantage of credits, deductions, and other perks.