Have other student tax filing questions? Be sure to visit our Tax Guide for College Students and find out about student forms that can be filed for free.

Which college expenses are tax deductible?

Due to tax changes in recent years, the rules around which college expenses are tax deductible or allow you to take a credit have changed. The list below covers categories of higher education expenses you may have questions about. Take a look to see which expenses still qualify as tax deductible.

• Qualified tuition and fees are no longer tax deductible after 2020. The Tuition and Fees deduction was an adjustment to income if you incurred qualified education expenses for you, your spouse, or your dependent.
• Work-related education expenses were previously tax deductible, but this deduction is not available for employees from 2018-2025 due to changes to itemized deductions with tax reform. Before this change, you may have benefitted from a deduction if the education was required by your employer or by law. However, if you are self-employed, you may be able to deduct education expenses. The education must enhance or improve skills related to your trade or business or must be required by law.
• Student loan interest, a college expense that generally applies in an after-college scenario, is still tax deductible. This college expense tax deduction lets you reduce your taxable income by up to $2,500 for qualified student interest paid during the year. In this case, qualified means the loan was only for education expenses, not for other types of expenses. The requirements state that the student must be the taxpayer, spouse, or dependent. The student must have been enrolled at least half-time at an eligible institution, and the program must lead to a degree, certificate, or other recognized credential. Furthermore, the loan cannot be from a related person or a qualified employer plan. Find additional student loan interest deduction criteria.

What is considered a qualified education expense?

Although key education expenses like tuition and fees are no longer tax deductible, you might be able to claim a credit by using the American Opportunity Credit or the Lifetime Learning Credit. Tuition and fees may be considered qualified education expenses, but the details can vary beyond those costs.

• American Opportunity Credit – In addition to tuition and required fees, you may include expenses for books, supplies, and equipment (including computers if required as a condition of enrollment) — even if they are not paid to the school. You must satisfy all requirements for the American Opportunity Credit to be able to receive the credit for these expenses.
• Lifetime Learning Credit – Included with qualified tuition and fees, you can count costs for course-related books, supplies, and equipment (including computers) required to be paid to the educational institution. Note that although the tuition and fees deduction is no longer available, starting in 2021 the income limits for the Lifetime Learning Credit have been increased, so the credit is now available for more students.

What doesn’t count as qualified expenses?

The Internal Revenue Service has rules for what you can and cannot deduct as a qualified expense. In general, insurance, medical expenses, transportation, and living expenses are not qualified school expenses for an education credit. Likewise, non-credit courses are not qualified education expenses, unless they are part of a degree program.

For more information about eligibility and requirements for these benefits, review our article on education tax credits. For details about college savings accounts and qualified expenses, check out our information about saving for college and reducing your tax bill.

Tax tip: Keep your documentation!

Schools will provide (via mail or electronic portal) the student with a Form 1098-T, which will reflect tuition and fees amounts that the school receives in payment. You may also use payment receipts or any other kind of statements showing the payment of qualified education expenses.

Need help determining deductible college expenses?

Whether you choose to file with a tax pro or file with H&R Block Online, H&R Block can help you determine which college expenses are deductible. We’ll help you get the maximum tax benefit for your education-related expenses.

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Understanding the tax rules, including the mortgage interest deduction limit, is key to taking this income tax deduction. Learn more about deducting mortgage interest in this post.

Who qualifies for the mortgage interest tax deduction?

First, let’s answer the question, “How does mortgage interest work?” When you repay a home mortgage loan each month, you pay a principal amount, plus interest. While money paid toward principal isn’t deductible, the interest is.

If you itemize deductions on Schedule A, you can deduct qualified mortgage interest paid on a qualifying residence, including your:

• Main home, or
• Second home

Homeowners must be legally responsible for repaying the loan to deduct the mortgage interest. Also, the interest must be paid on a debt that is an acquisition indebtedness, which is a debt incurred or assumed to acquire, construct, reconstruct, or substantially improve real property that is secured by the debt.

You can increase your mortgage interest deduction by making extra mortgage payments yearly. For example, if you pay your January mortgage in December, you’ll have one extra month’s interest to deduct. However, you can deduct only what qualifies as home mortgage interest for that year. This might work in your favor when it comes to mortgage points (a fee you can pay to help lower your mortgage interest rate). And if the loan proceeds are used to substantially improve the main residence, the points are fully deductible in the year the mortgage is refinanced

What qualifies as mortgage interest?

As a taxpayer, you can fully deduct most interest paid on home mortgages if all the Internal Revenue Service’s (IRS) requirements are met. You must separate qualified mortgage interest from personal interest. Mortgage interest is usually deductible, but personal interest isn’t.

Mortgage interest deduction limit

The deduction for mortgage interest is allowed for home acquisition debt. (A home mortgage is also called acquisition debt.  These debts are used to buy, build, or improve your main or secondary home.)

If you’re questioning, “How much mortgage interest can I deduct on my taxes?” you can fully deduct the home mortgage interest you pay on acquisition debt as long as the debt isn’t more than the following amounts within a tax year:

• $750,000 of mortgage debt if the loan was finalized after Dec. 15, 2017
• $1 million of mortgage debt if the loan was finalized on or before Dec. 15, 2017

These limits are halved if you’re Married Filing Separately. (Note: The lower debt limit is effective 2018 through 2025 and will revert back to $1 million after 2025 (barring legislation passing.))

You can’t deduct the interest you pay on home equity loans or home equity lines of credit if the debt is used for something other than home improvements. This includes things like using it to pay for college tuition or to pay down credit card debt.

An example: In 2020, Chris bought his main home for $500,000. A few years later, he owed $400,000 on the original mortgage and took out a $60,000 home equity loan. He used the money to build a sunroom and install an indoor pool. His home is now worth $700,000. He then took out another $130,000 home equity loan and bought a sailboat.

On his 2023 tax return, it’s better for him to itemize his deductions vs. claiming the standard deduction. That said, he can deduct the home mortgage interest he pays on:

• $400,000 left on the original mortgage (acquisition debt)
• $60,000 sunroom and pool loan (acquisition debt)

He can’t deduct any interest related to the home equity loan for the sailboat.

Splitting the home mortgage interest deduction

What if you share a mortgage with another person? How do you split the home mortgage interest deduction with your spouse? You can each split the mortgage interest you paid if the above requirements are met. If one person in a party doesn’t itemize deductions, the other can’t deduct the full amount of the mortgage interest unless they actually paid it.

Mortgage interest deduction exceptions

Here are some exceptions to the home mortgage interest deduction:

• Suppose a first or second home is used for personal and rental use. In that case, you can allocate the deduction limited to the part of the home allocated for residential living or follow the special variation home rules for the second home. Learn more about navigating income tax on rental properties.
• If part of your home is used as a home office, then that portion should be allocated as a business expense as a home office deduction, not the mortgage interest deduction.

How to claim the mortgage interest deduction

If you’re wondering how to claim the mortgage interest tax deduction, there are a few pointers to consider.

1. Itemize your taxes

As mentioned above, you claim the mortgage interest deduction only if you itemize vs. take the standard deduction when you do your taxes. You’ll use Tax Form 1040 (Schedule A) to itemize tax deductions.

2. Get your IRS Form 1098

You will get Form 1098 if you pay $600 or more mortgage interest throughout the tax year from your bank lender in late January or early February. This tax form details how much you paid in mortgage interest in a year. Your lender also sends a copy of that 1098 to the IRS. Use this form in the event of an IRS tax inquiry or audit.

Use Schedule E (1098) for rental property interest.

3. Calculate your mortgage interest deduction

You will need to calculate your deduction by figuring how much interest will qualify for the deduction. Remember the rules above for what kinds of interest payments qualify for deduction.

4. Report the deduction on Form 1040

You will report the deduction on Form 1040, Schedule A.

Navigating the mortgage interest deduction

It pays to take mortgage interest deductions, but it requires a little extra legwork to claim. If you’re looking for help claiming the mortgage interest deduction or other valuable tax deductions, H&R Block can help. Whether you make an appointment with one of our knowledgeable tax pros or choose one of our online tax filing products, you can count on H&R Block to help you with your tax preparation and get your max refund or lower what you owe in income tax.

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No need to delay your filing! In fact, file now to receive your current Child Tax Credit right away and receive any top off amount later.  

The Child Tax Credit is a valuable tax benefit claimed by millions of American parents with the goal of offsetting the costs of raising a child. The Child Tax Credit is worth up to $2,000 for each qualifying child for 2023 (returns filed in 2024). 

What is the Child Tax Credit?

Simply stated, the Child Tax Credit (CTC) is a tax credit for those with dependent children under age 17 at the end of the tax year. Taking the credit can help lower your tax bill dollar-for-dollar – and depending on how much you owe, it may take your taxes owed down to zero.

Like many tax benefits, you must meet certain requirements before you can claim the Child Tax Credit. These cover details about the child, the relationship between you and the child, and your income.  We’ll get into these details below as we review who qualifies for the Child Tax Credit.

Don’t leave money on the table

File your taxes to claim the Child Tax Credit. Our tax pros can help you file in person or virtually, or you can file on your own online.

File now

Is the Child Tax Credit refundable?

The Child Tax Credit is not a refundable tax credit. But, the related credit, called the Additional Child Tax Credit, is refundable. This article covers details for both, but here are the major takeaways:

• The nonrefundable Child Tax Credit can reduce your tax to zero. If the amount of your credit is higher than the taxes you owe, you don’t “get back” the rest of the credit as a refund.
• The refundable Additional Child Tax Credit can reduce your tax to zero and, if there’s credit left over, you’ll get money back. 

How much is the 2023 Child Tax Credit? (also known as 2024 Child Tax Credit)

For 2023 taxes (for returns filed in 2024), the Child Tax Credit is worth $2,000 for each qualifying child. You can claim this full amount if your income is at or below the modified adjusted gross income threshold (see the income phase out information below).

The refundable Additional Child Tax Credit is worth up to $1,600.

Who qualifies for the Child Tax Credit?

Qualifying for the Child Tax Credit is about more than just having a child in your home. In fact, there are seven requirements, or “tests,” that must be met to qualify for this credit.

Let’s dig into them:

1. Age: The child must be under age 17 at the end of the tax year.
2. Dependent status: The child must be allowed as a dependent on your tax return.
3. Relationship: The child must be your own child, stepchild, sibling, or a descendant of your child, stepchild or sibling. It also includes a foster child placed with you by an authorized placement agency.
4. Citizenship: The child must be one of these: a U.S. citizen, a U.S. national, or a U.S. resident.
5. Financial support: The child must not have provided more than half of their own support.
6. Residency: The child must have lived with you for more than half of the tax year. There are exceptions for divorced or separated parents, where the child may live with the other parent for more than half the year, but you still may be able to claim the child.
7. Filing status: The child must not have filed a joint return, except in certain cases where they filed only to claim a refund of withheld income tax or estimated taxes.

On top of these tests, you must also meet income thresholds to take full benefit as the credit phases out for high earners. Read on to understand how the phase out works.

Child Tax Credit income limit and phase-out

The Child Tax Credit amounts change as your modified adjusted gross income (MAGI) increases. In fact, once you reach a certain threshold, the credit amount decreases or phases out.

And the credit amount is reduced $50 for every $1,000 — or fraction thereof — that your modified AGI is more than:

• $200,000 if filing as single, head of household, or qualifying widow(er)
• $400,000 if married filing jointly
• $200,000 if married filing separately

For the purpose of this credit, your modified adjusted gross income (MAGI) is your AGI plus excluded foreign earned income, possession income, and foreign housing.

Additional Child Tax Credit

If your tax liability is very low, the Child Tax Credit may not be the most advantageous for your situation. Or, if you don’t owe any taxes at all, you may not see the benefit of filing a return. While you may not be required to file a return, you could benefit from filing and claiming the refundable Additional Child Tax Credit. 

This is where difference between a refundable vs. non refundable tax credit matters. Claiming the ACTC means you could receive money back. The maximum refundable portion of the Additional Child Tax Credit is limited to $1,600 per qualifying child.

Additional Child Tax Credit qualifications

To qualify, one of these must apply:

• Your earned income must be more than $2,500 for 2023.
• You must have three or more qualifying children.

If you have at least one qualifying child, you can claim a credit of up to 15% of your earned income over the earned income threshold, $2,500.

If you have three or more qualifying children, you can either:

• Claim a refundable credit of the net Social Security and Medicare tax you paid in excess of your Earned Income Credit (EIC), if any.
• Use the 15% method described earlier.

How to claim the Child Tax Credit

You can claim the Child Tax Credit as part of filing your annual tax return with Form 1040. You’ll also need to complete and include Schedule 8812 (Credits for Qualifying Children and Other Dependents). This document will help you figure out how much of the Child Tax Credit/Additional Child Tax Credit you’re eligible to receive.

When to expect your Child Tax Credit refund 

The typical timeframe for the IRS to issue a refund is 21 days or less if you’ve filed electronically and chosen to receive your refund by direct deposit.

However, if you have anything missing or errors on your return, it could require additional review. It’s a good idea to double check your return to avoid this extra processing time. Additionally, it could take longer to receive if you’ve chosen a paper check, of course, as you may encounter longer mail times.

What else should you know about Child Tax Credit requirements and rules

You can’t carry forward any portion of the Child Tax Credit to future tax years. Additionally, you need to claim any other nonrefundable credits you may be eligible for, in a certain order to get the most benefit. In other words, you might need to calculate other credits first to properly apply the credit.

Child Tax Credit considerations for divorced and separated parents

The Child Tax Credit and Additional Child Tax Requirement requirements apply to divorced or separated parents, too. However, if the parents have a qualifying agreement for the noncustodial parent to claim the child, the noncustodial parent who claims the child as a dependent is eligible to claim the Child Tax Credit.

A parent can claim the CTC or ACTC if their filing status is Married Filing Separately.

Getting help claiming the Child Tax Credit

Have questions or ready to file your Schedule 8812? We’re here to help! Whether you file taxes online or with an H&R Block tax pro, we’ll help you uncover every last credit and deduction you deserve.

*As currently written, the bill would direct the IRS to issue any additional refunds as soon as possible to those who have already filed.   

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If your portfolio takes a beating during the tax year, there is some good news. There are tax strategies to buffer a loss or reduce what you owe the Internal Revenue Service (IRS). It’s called tax loss harvesting. Follow along as we outline the details of harvestable tax losses and how to offset capital gains for investors.

What is tax loss harvesting?

Essentially tax loss harvesting is when you purposefully sell assets at a loss. In turn, the losses from those investments’ gains let you offset your gains elsewhere in your investment portfolio and if you have enough losses, reduce your ordinary income, and in turn, potentially your tax bill.

Tax loss harvesting opportunity

As an investor, it’s important to note that tax loss harvesting only applies when you actually sell or exchange your securities or crypto at a loss. (Related read: Learn more about cost basis.) The same applies to any gains you’ve received from transactions. You can’t offset capital gains with losses if the gains and losses are only on paper (meaning you didn’t have a transaction or actually realize a gain or loss).

A quick review on capital gains and losses

A tax loss harvesting strategy is commonly used to reduce the amount of taxes owed on short-term capital gains, which are taxed higher than long-term capital gains. As a quick review, let’s revisit a few terms.

First, a capital asset is any asset you (an investor) own, whether physical or intangible:

• Tangible examples include jewelry, gold, and precious metals; however, losses from personal use assets aren’t deductible (Read more about the capital gains on a home sale).
• Intangible examples include patents, trademarks, and intellectual property
• Financial assets such as cryptocurrency, stocks, bonds, and other securities 

Second, capital gains and losses are generally the difference between what you paid for an asset (your basis) and what you sold it for.

• You’ll have a capital gain if you sell an asset for more than you bought it.
• You’ll have a capital loss if you sell an asset for less than you bought it.   

You adjust your basis (increase or decrease) by certain costs. For example, you increase the basis of stocks by any commission you paid to purchase the stock.

Third, capital gains are taxed based on the length of time you own the asset.

• Short-term capital gains apply to assets you’ve held for a year or less.
• Long-term capital gains apply to assets you’ve held for more than a year.

Learn more about how to calculate capital gain taxes as a tax and investment strategy.

How to offset capital gains with losses: What to know

You can offset capital losses against your capital gains to reduce your total taxable income (gain). Once you’ve identified the right assets for tax loss harvesting and you sell them, the next step is offsetting capital gains with losses.

Tax loss harvesting rules and limitations

To make sure you’re going about it the right way and avoid a tax liability, it’s a good idea to be aware of the investor rules around offsetting capital gains for your tax bill.

1. You can’t tax loss harvest with individual retirement accounts because you can’t deduct the loss from a tax-deferred account.
2. IRS wash sale rules prevent you from selling and then purchasing essentially identical stock for the sole purpose of creating a deductible loss. If you have a loss on a wash sale, you won’t be able to deduct it from your taxes based on the current rules. However, the disallowed loss on a wash sale is added to your basis in the new stock or securities purchased.
3. Capital gains and losses must be grouped together by time frame—i.e., short- or long-term. We’ll cover harvestable loss more in the next section.

Harvestable tax loss: Why short-term and long-term holdings matter

It can get confusing when you have a lot of capital gains and losses that include both long-term and short-term assets. Long-term gains have a lower tax rate than short-term gains. To offset either type of gains, you’ll have to group like with like. This is sometimes called “netting capital gains and losses”.

Here is an overview of the basic rules:

• Long-term capital gains − long-term capital losses = net long-term capital gains
• Short-term capital losses − short-term capital gains = net short-term capital losses
• Net long-term capital gains – net short-term capital losses = net capital gains
• Losses that exceed gains may offset ordinary income up to $3,000 ($1,500 Married Filing Separately) per year. Any excess is carried forward to the following year.

Tax loss harvest in action

Here’s an opportunity to better understand how tax loss harvesting works with this helpful example:

Sebastian is an amateur investor who has owned cryptocurrency for three years. This year, he sold his shares—some at an income gain and some at a loss. Let’s work through the math to see how Sebastian was able to offset his capital gains and reduce his ordinary income with the remaining losses.

$3,000 gain – $4,000 loss = -$1,000

After offsetting his long-term capital gains and losses, he had $1,000 in capital losses left over.

He can use the $1,000 in capital loss to reduce his ordinary income.

Learn more about crypto taxes.

Get help with reporting harvesting losses

In most cases, you’ll use Form 8949 to report your investor gains and losses on Schedule D.

If you need help reporting harvestable tax losses or need guidance on how to increase your tax breaks, let H&R Block help so you lower your tax liability and maximize income. Make an appointment with one of our tax pros today who can help with investment gains, tax efficiency, and capital gains tax. Or, if you prefer to file on your own, our online tax filing product can help you.

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Whether you’re looking to find out how marriage affects your taxes from a financial perspective, or you just need to know what steps or forms need to be considered, we’ve got you covered in this post. While not all the impacts mean you get a better tax return outcome if you’re married this year, there are some tax benefits that will help your finances over your lifetime together. 

Tax benefits of marriage: A few examples

When you’re tying the knot, you have a lot to consider where finances are concerned. For your taxes, you’re probably wondering what happy news there might be to go along with your nuptials. “Do you pay less tax if married? What tax breaks are there for married couples?”

So, what are the tax benefits of marriage? We’ll outline those advantages in this section.   

Gift taxes and estate planning

Spouses can give unlimited gifts of cash or other property to one another free of gift taxes. This provision has important implications for estate planning purposes, so be sure to revisit your estate plan once you get married.

IRA beneficiary options

Rules for inheriting an IRA can get complicated and can sometimes mean paying taxes when you’re named as someone’s beneficiary. However, spouses have a special option, which may ultimately mean you can defer the distributions longer and if you are in a lower income tax bracket at the time of distribution, paying less tax on the distribution. When you name your spouse as the beneficiary of your IRA, your spouse can treat the inherited IRA as their own.

• If it’s a Traditional IRA, your spouse may be able to put off taking distributions longer than a non-spouse.
• If it’s a Roth IRA, your spouse won’t need to make RMDs during their lifetime.

Find out more about IRA withdrawal rules.

Tax changes after marriage: What to be aware of

Getting married comes with its own to-do list, even if you’re planning just a simple wedding. But what happens after you say “I do”? As you adjust to your new life and new roles together, don’t forget about the tax changes after marriage. Read on to see what you’ll need to consider.

Name change with Social Security

Because your return is filed under your Social Security number (SSN), it is important to ensure that the Social Security Administration (SSA) has been notified of any name changes that take place. The SSA must process the change in the system and relay that information to the IRS before you file your return. You should wait to file your return until after the name change process has been completed to avoid any complications that could arise if the name on the return does not match the SSN on file with the SSA.

Changes to your W-4 tax form after marriage

It may be wise to change your Form W-4 with your employer to reflect a change in marital status, as your form entries will be different than previous years.

Filing status options

Once you get married, the only tax filing statuses that can be used on your tax return are Married Filing Jointly or Separately. (Related read:

“What’s the benefit of Married Filing Jointly (MFJ) vs. Married Filing Separately (MFS)”? Marriage tax benefits for filing taxes together are the following:

• The tax rate is often lower.
• You may be able to claim education tax credits if you were a student.
• You may be able to deduct student loan interest. (Student loan interest is not allowed when filing as MFS, but it’s also limited by income, so if combined income is too high, the student loan interest deduction can be limited or disallowed.)
• You can claim credits for children and childcare expenses. The child tax credit and credit for other dependents are both permitted on an MFS tax return. The child and dependent care credit is generally not permitted on an MFS return.
• You can claim the Earned Income Tax Credit (if you qualify).

Your filing status is determined on December 31 of each year, so even if you were not married for most of the tax year, you do not have the option of filing as single if you are married before the end of the year. Generally, married filing jointly provides the most beneficial tax outcome for most couples because some deductions and credits are reduced or not available to married couples filing separate returns.

Marriage can change your tax brackets

The tax brackets will determine the highest rate of tax imposed on your income.  Tax brackets are different for each filing status, so your income may no longer be taxed at the same rate as when you were single.

When you are married and file a joint return, your income is combined — which, in turn, may bump one or both of you into a higher tax bracket. Or, one of you is a higher earner, that spouse may find themselves in a lower tax bracket. Depending on your situation, this could be a tax benefit of being married.

Buying or selling your first home

Once you get married, your combined incomes may allow you to purchase your first home or you may choose to sell individual homes owned before the marriage. When you own a home, interest you pay on your mortgage of up to $750,000 is deductible on your tax return as an itemized deduction.

If you are selling a home, the amount of gain that can be excluded from income doubles from $250,000 to $500,000. Be cautious, though: if only one of you owned the home before the marriage, the $500,000 exclusion applies only if you both lived in the home as your main home for at least two years.

Marriage tax penalty 

A marriage tax penalty exists when two individuals filing a joint return pay more tax than the sum of their individual tax liabilities calculated as if they were filing as single taxpayers. One reason this occurs is because the MFJ income tax brackets and standard deduction are not always equal to twice the single income tax bracket and standard deduction.

Under current law, the marriage penalty is partly alleviated because the lower income tax brackets (10%, 12%, 22%, 24%, and 32%) and the standard deduction for MFJ are exactly double that of single individuals.

What other tax credits or benefits do married couples get?

Marital tax changes can get complex – which is why many people get the help of a tax pro to find post-marriage tax credits and deductions they could otherwise be missing.

Whether you choose to file with a tax pro or file with H&R Block Online, you can rest assured that we’ll help you maximize your refund.

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What is an IRA?

You may have heard this common acronym before, but if not, an IRA is an Individual Retirement Arrangement, and it’s a term used to describe two different types of accounts: Roth and Traditional. Both have tax advantages yet have different rules to be mindful of. For example, earnings in either of these accounts can accumulate tax-free, but depending on your situation they may be taxed at a later date.

Income sources for Traditional and Roth IRAs

You can start either a Traditional or Roth IRA if you receive taxable compensation from the following sources:

• Wages, salaries, and tips
• Sales commissions
• Professional fees
• Bonuses
• Self-employment income
• Military compensation while serving in a combat zone tax-exclusion area
• Certain alimony or separate maintenance payments included in gross income
• Non-tuition fellowship and stipend payments included in gross income

Income sources not included as compensation for IRA purposes are:

• Profit from the sale of stocks or other property
• Interest income or dividend income
• Rental income
• Pension or annuity income
• Income from certain partnerships
• Deferred compensation

Traditional IRA Rules

While the income sources for both types of IRAs are the same, the differences between the two account types become clear when you start looking at the details.

Traditional IRA contributions

With a Traditional IRA, the income limit to contribute to all accounts (both Traditional IRAs and Roth IRAs) must be the smaller of:

• Your taxable compensation for the year
• $6,500, the maximum IRA contribution for 2023 or $7,500 if you’re age 50 or older and are making catch-up contributions

You must start withdrawing from your Traditional IRA by April 1 of the year after the year you reach your required beginning date (RBD), no matter your tax rate. Learn more about these withdrawals, which are called Required Minimum Distributions.

Are Traditional IRA contributions tax deductible?

You might have heard that contributing to your IRA is a great way to lower your taxable income. That’s true, but this is only possible with a Traditional IRA (not a Roth). What’s more, not everyone qualifies to have their contributions count as a deduction. What’s more, some people may only be able to deduct a portion of their contribution from their income.

These two tests determine how much of your IRA contributions are tax-deductible:

Active participant test

The W-2 your employer sends reveals if you’re an active participant for the tax year in an employer-sponsored plan like a 401(k). On the form, the “Retirement Plan” box should be checked if you’re an active participant.

If neither you nor your spouse were active participants in a company-sponsored plan, you can deduct your Traditional IRA contributions regardless of your taxable income.

IRA income test

If you’re covered by a company plan, a second test indicates how much of your IRA contribution you can deduct. If you’re an active participant in a company plan, the Traditional IRA deduction for 2023:

• Begins to phase out when your Modified Adjusted Gross Income (MAGI) reaches $73,000 if you are Single or Head of Household, or $116,000 if Married Filing Jointly
• Is phased out completely when your MAGI is more than $83,000 if you are single or head of household, or $136,000 if Married Filing Jointly
• The phase-out range increases to $218,000 to $228,000 for a spouse who is not an active participant when the other spouse is an active participant in a company plan

If your MAGI is equal to or less than the lower phase-out threshold, you can deduct your full IRA contribution even if you’re an active participant in a company plan.

As a refresher, your MAGI is your AGI with these items added back:

• Traditional IRA deduction
• Student-loan interest deduction
• Foreign earned-income exclusion
• Foreign-housing exclusion or deduction
• Excluded U.S. Savings Bond interest
• Excluded employer-provided adoption benefits

If you and your spouse file separate returns, the income limit (phase-out range) is $0 to $10,000. So, you can’t claim the IRA deduction if your MAGI is more than $10,000.

You’re considered unmarried for purposes of the IRA deduction limitation if you’re married but:

• You didn’t live with your spouse at any time during the year
• You and your spouse filed separate returns

Traditional IRA recordkeeping

If you have contributed to a nondeductible Traditional IRA, keep track of your basis to make sure you don’t pay tax on the money again when you withdraw it.

Basis is usually the combination of nondeductible IRA contributions made and the basis from after-tax amounts in qualified retirement plans rolled over to your Traditional IRA accounts. If so, you’ll need to calculate the taxable portion of any withdrawals.

You might receive both taxable and nontaxable distributions. If so, use Form 8606 Instructions to help you figure the taxable portion of your IRA withdrawals. File Form 8606 for any tax year you made a nondeductible IRA contribution and to track your total IRA basis.

Roth IRA rules

Roth IRAs are subject to many of the same rules as Traditional IRAs. However, there are exceptions:

• You must designate the account as a Roth IRA when you start the account.
• You can’t deduct your contributions to a Roth IRA on your tax return, but your withdrawals, assuming you follow the rules (i.e. make qualified distributions), will be tax free.
• You can make contributions to your Roth IRA regardless of your age, however; you must receive taxable compensation to make contributions.  (Starting in 2020 you can continue to make Traditional IRA contributions as well.)
• You don’t have to take withdrawals starting at any age.
• The balance in your Roth IRA account when you pass generally goes to your heirs tax-free. The account must have been open and contributed to for at least five years.

Roth IRA contributions

Roth IRA contribution limits are the same as those for Traditional. We’ll list them here again for reference.

The maximum amount you can contribute to all accounts (both Traditional IRAs and Roth IRAs) must be less than:

• Your taxable compensation for the year
• $6,500, the maximum IRA contribution for 2023 or $7,500 if you’re age 50 or older and are making catch-up contributions

Additionally, in 2023, Roth contributions:

• Begin to phase out when your MAGI reaches $138,000 if you are Single or Head of Household, or $218,000 if Married Filing Jointly
• Is phased out completely when your income is more than $153,000 if you are Single or Head of Household, or $228,000 if Married Filing Jointly
• Married couples Filing Separately can’t make Roth IRA contributions if their MAGI is more than $10,000 and you lived together at any time during the year.
• You can file Married Filing Separately and contribute to a Roth IRA if you didn’t live with your spouse at any time during the year. Your MAGI limits are the same as the Single or Head of Household filing status as mentioned above.

How are Roth IRA contributions taxed?

Roth IRA contributions are taxed as normal income because they aren’t deductible. Because your contributions are included in your normal income the year you contribute, you can withdraw your contributions (but not your earnings) tax-free and penalty-free at any point you wish to do so. Rollover contributions are subject to a different set of rules.

Learn more about how Roth IRA contributions are taxed.

IRA contributions: Additional details

If you contribute more than the limits mentioned above, there’s a consequence.  It’s called an excise tax and it’s equal to 6% of the amount you go over the limit (i.e., an excess contribution). The penalty applies each year until you either withdraw the excess or use the excess as a future year’s contribution. But, you don’t have to pay the excise tax if you withdraw the extra amount by the tax return deadline (plus extensions).

IRA contribution age limit

There’s no minimum age to participate in an IRA. If your teenage child has compensation from a part-time job, your child can contribute to an IRA up to $6,500 (or their compensation amount if lower).

Due date for IRA contributions

The last day to make your IRA contribution each year is when your tax return is due, not including extensions. You can mail your IRA contribution, and you’ll meet the deadline if it’s postmarked by the original due date for filing Form 1040.

Spousal IRAs

If you’re married and your spouse doesn’t have earned income or makes less compensation than you, you can open an IRA account for them. You can contribute up to the maximum for your spouse as long as you don’t exceed the total compensation received by both spouses on a Married Filing Jointly return. When you are 50 or older, the limit increases to $7,500 per spouse in 2023.

You can have many IRA accounts and can:

• Contribute to a single Traditional IRA or Roth IRA account each year
• Open a different account each year
• Divide each year’s contribution among several accounts
• Divide your contribution between a Traditional IRA and a Roth IRA, subject to the MAGI limits that apply

However, by having more than one account you might also pay multiple trustees for annual fees or other bookkeeping fees.

No matter how many accounts you have, your total annual contributions can’t be more than the maximum allowable limit. Speak with a financial professional for investment guidance.

IRA rules – Moving your money around

You don’t have to keep your IRAs in the same investment types or financial institutions from your contribution date to your retirement date. You can move your money around to take advantage of changes in the market or in your investment philosophy.

However, you must follow certain rules. Some financial institutions might impose penalties if you change investments before the maturity date is up (Ex: CDs and annuities).

Converting your Traditional IRA to a Roth IRA

Moving money from your Traditional IRA to a Roth IRA is called a conversion. Many people take advantage of this method because you can convert funds from your Traditional IRA to a Roth IRA regardless of income. Take note: Any money in your Traditional IRA that wasn’t previously taxed (contributions and earnings depending on your situation), will be taxed the year you do the conversion to a Roth. Also, once you convert funds from your Traditional IRA to a Roth IRA you can’t change your mind and return the money to your traditional IRA.

Roth or Traditional IRA: Which is best for you?

Retirement accounts can complicate your taxes, so consider tax guidance. Whether you choose to file with a tax pro or file with H&R Block Online, you can rest assured that we’ll get you the biggest refund possible and help use deductions and tax strategies to reduce your tax rate.

The post Rules for Traditional and Roth IRA contributions appeared first on H&R Block.

First steps and dependent requirements when claiming a newborn

Who knew babies come with paperwork and to-dos? When it comes to income tax, there are a few important steps to take to make sure you’re eligible to claim them.

1. Apply for a Social Security number

First up – apply for your baby’s Social Security number. You will need this number before doing anything else. If you’re giving birth at a conventional hospital, hospital staff often prompt you to do this. You can also visit or contact the Social Security Administration to fill out Form SS5, the Application for a Social Security Card. Once you have applied, the number could take about two weeks to arrive.

Sometimes, you might not get your child’s SSN before you file your tax return. If you haven’t received the SSN by the original tax deadline for the given tax season, you should file an extension using Form 4868.

2. Determine who can claim the baby

Determine if your newborn is “yours to claim” on taxes. There are several tests to determine if your child is your tax dependent. A qualifying child must meet specific tests: relationship, age, support, abode, U.S. citizenship, and the joint return test. For newborns, you don’t have to worry about the age test (where your dependents must be younger than you and under 24 to claim). In addition, your newborn isn’t married, so there’s no joint return to consider. If your baby was born in the U.S., they are a U.S. citizen or resident.

If you have a newborn but get divorced within the same tax year, there are specific rules to follow for tax purposes. It comes into play when you and your former spouse file your own returns and want to claim your newborn as a dependent on your tax returns. The Internal Revenue Service (IRS) generally determines who can claim the newborn by residency. The parent with whom the child lived the most during the tax year (custodial parent) claims them as a dependent. The custodial parent can allow the noncustodial parent to claim the child by signing Form 8332 and giving the form to the other parent.

A different rule called the “Tiebreaker rule” comes into play when you lived together but don’t file a return as Married Filing Jointly. Then, the parent who lived with the baby the longest can claim the baby as a dependent. If you both lived with the baby the same amount of time, the parent with the higher adjusted gross income can claim the newborn as a dependent child.

Once your baby is assigned a Social Security number and meets the requirements, you can claim your newborn on your taxes.

Don’t skip these steps! If you claim your newborn, but don’t include their Social Security number (SSN) on the return, you’ll miss important tax credits and deductions. That’s right! As a dependent, your child can help you reduce your taxable income and increase your tax refund.

Don’t leave money on the table

File your taxes to claim credits and deductions for your newborn. Our tax pros can help you file in person or virtually, or you can file on your own online.

File now

Possible changes in filing status

If you are single, had a baby, and now support that child in the home where you live, you’re likely eligible to use the Head of Household (HOH) filing status. This filing status gives you a larger standard deduction and more favorable tax brackets. Thanks to your new bundle of joy, you could pay less federal tax as HOH than you would as Single for the same income.

If you are married, having a child will not generally affect your filing status.

Newborns and tax breaks

Having a baby is often associated with being eligible for tax breaks and tax benefits. What you might not know is that tax rules change frequently, so the types of tax breaks and the amounts can change as well.

For tax years prior to 2018, you were able to take a dependency exemption, which sheltered a few thousand dollars of your income from tax. Under that previous law, you could get the full-year exemption, no matter when your child was born or adopted within the tax year.

While the dependency exemption is not available for tax years 2018-2025, there is an abundance of other tax credits and deductions to take, outlined here:

1. Child Tax Credit

Babies are oh-so-cute, but they can be expensive.

That said, you’ll want to know about the Child Tax Credit, which could lower your tax bill up to $2,000 per qualifying child (if your income is not too high). What’s more, this credit is partially refundable. So, you may receive a refund even if you don’t owe any taxes, and you may even get money back as a refund. Paying less in income tax could mean higher quality diapers or nicer toys for your little one!

2. Child Care Credit

If you paid a qualifying individual or organization to care for your child while you work, you might be able to claim the Child and Dependent Care Credit on your federal tax return. It’s based on your amount of earned income and can be up to 35% of your qualifying childcare expenses, up to a max expense of $3,000 for one child, and up to a max expense of $6,000 for two or more children.

Note: The Child and Dependent Care Credit could be reduced if you utilize tax-free dependent care benefits from your employer.

3. Medical expense deduction

Hospital fees and other medical expenses can add up when you give birth to a baby. For this reason, consider taking advantage of the medical expense deduction if your expenses exceed 7.5% of your AGI.

You might be surprised to find that the cost of breast pumps and lactation supplies also count as medical expenses. These expenses may help you get over the hump to take the deduction.

Note: To claim the medical expense deduction, you need to itemize deductions instead of claiming the standard deduction. If you don’t have enough medical and other expenses to itemize deductions, out-of-pocket medical expenses for your baby can be paid or reimbursed through your Health Savings Account (HSA).

4. Other tax considerations for parents

While the following are not tax breaks, there are a few other tax related topics you may want to know about.

• You may also accept gifts (in money or property) from friends, grandparents, and other qualifying relatives that are income-tax-free to you and your child.
• You can participate in a Qualified Tuition Plan (QTP, also called “a 529 plan”). This valuable account helps you set aside money for your child’s future education expenses. While there is no immediate federal tax break on your federal return, earnings in the account grow tax-free, distributions used for education costs are tax-free, and you may get a state deduction or credit for your contributions.
• It’s worth noting that the Earned Income Credit doesn’t require a dependent in order to take.

Filing as a first-time parent? Rely on Block for help

Being a new parent brings many changes and responsibilities, including taxes. By following the tax tips mentioned above, you can maximize tax credits and minimize your tax liability, saving your hard-earned money in the long run.

Whether you choose to file with a tax pro or file with H&R Block Online, you can rest assured that we’ll get you the biggest refund possible.

The post Claiming a child on taxes: Tax tips & rules for claiming a newborn appeared first on H&R Block.

What is a 529 plan?

A 529 plan is a type of account that features certain tax benefits and is especially designed for saving for and paying for college and other qualified higher education. Think of it as a Roth IRA or mutual fund of sorts. The difference between common individual savings plans and 529s is that the plan fund exclusively is used for educational expenses.

Examples include apprenticeship programs, vocational schools, and other postsecondary learning institutions eligible to participate in the federal student aid program administered by the United States Department of Education. Plus, coverage includes elementary or secondary private schools (think K-12 tuition), religious schools, and even student loan repayments – advancing the opportunity to leverage tax savings in other areas.

Are 529 contributions tax deductible?

If college is in your or your loved ones’ futures, you’re probably wondering if 529 contributions tax are deductible. And for a good reason: It’s essential to understand what you can deduct when you direct plan funds!

In short, 529 contributions are not tax deductible on the federal level. However, some states consider contributions tax deductible. (Defer to your state treasurer for more info!)

Plus, 529 plans offer other tax benefits. Earnings from the direct plans aren’t subject to federal income tax and generally not subject to state income tax when used for qualified education expenses. In essence, the earnings on your contributions can grow tax-free over time.

As you review your 529 plan options, be sure to check the deductibility rules for your state.

529 college savings plans: Distributions and recontributions

When it’s time to take money out of your 529 to pay for higher education expenses (called a distribution or withdrawal), you’ll want to understand the tax implications.

First, any earnings withdrawn are excluded from a student’s taxable income. In addition, some states allow contributions to be excluded from your state tax bill.

The Internal Revenue Code states the taxation of 529 depends on how you use it. Below, we’ll define and expound on distributions and recontributions.

Unqualified distributions:

Because 529s are built to be used for certain college expenses, a 10% penalty will apply to the earnings portion if you take the money out for other purposes. (This is on top of the normal tax on the earnings.) That said, it’s important to know what expenses meet the rules and which don’t.  If the expenses meet the rules, the distribution is considered qualified. 

Qualified distributions:

When you take funds out of your 529 Plan, you won’t need to pay federal or state taxes on the distribution as long as you use the withdrawal for qualified education expenses. In addition, you don’t incur a tax penalty if you use the funds right away for an acceptable expense.(For some people, you might take a distribution that is partially taxable only if a part of it is used on qualifying expenses.)

What are 529 qualified expenses?

529 qualified higher education expenses generally include:

• Books
• Computer technology or equipment
• Fees
• Room and board
• Tuition plans

A word of caution for those claiming the American Opportunity Tax Credit (AOTC): You can claim this credit the same year that you have a 529 distribution. But, here’s what you need to watch out for: You can’t use the same expenses for the AOTC that you’ve paid for with your 529 money. For example, if you paid tuition with your 529, you wouldn’t use that expense to claim the AOTC. Long story short, there’s a rule against double dipping using the same expenses for the AOTC & 529 money.

Have other related tax filing questions? Make sure to visit our Tax Guide for College Students and reference other college student tax credits.

Recontributions:

With 529 plans, you might come across the term “recontributions.” It’s when your school issues a refund for expenses paid with a 529 plan, and you recontribute it back to the plan (to the same beneficiary) within 60 days to avoid paying taxes or incurring a tax penalty. The PATH Act of 2015 added a special rule for the recontribution of 529 refunds.

What else should you know about recontributions?

When you put the refunded money back into your plan, it must be equal to or less than the refund amount. If you put back more than what you originally contributed, it’s considered a new contribution. Also, because recontributions part of your principal, they don’t count towards your plan’s maximum contribution. 

How do I report 529 withdrawals?

Do you need to report 529 activity on your taxes each year? The short answer: it depends.

Scenario 1: If you’re not withdrawing from your account, you don’t need to report it on your income taxes.

Scenario 2: If you take a 529 distribution, the 529 plan administrator will send Form 1099-Q by Jan. 31 the next year. Suppose the funds were used on a qualified education expense or rolled over to another 529 plan. In that case, you don’t need to report anything on your taxes. But, if you take a distribution and use it for an unqualified expense, it counts as a taxable withdrawal. It will be subject to federal (and sometimes state) taxes.

Get expert tax guidance on 529 plans today

With a bit of planning, you can use educational savings plans to pay for school smarter (like avoiding excessive student loans) and offset taxes.

To review your own options, learn about all the ways to file with H&R Block. For state income tax guidance – like finding out if there’s a state tax deduction for 529 contributions – learn more about our state tax filing software.

You could also reach out to a financial advisor for personalized guidance in building a unique college investing plan.

The post 529 college savings plans: Are 529 contributions tax deductible? appeared first on H&R Block.

That’s right! Did you know solar tax credits for eligible solar PV (photovoltaic) energy system upgrades are available to taxpayers? To encourage people to use solar power and clean energy, the U.S. government offers a special federal income tax credit for residences with solar power. It’s commonly called the “solar ITC” Learn more about the benefits of this federal tax credit and how to claim this residential clean energy credit on your taxes in this post.

Federal solar tax credit benefits

The Residential Clean Credit (formerly called the Residential Energy Efficient Property credit, or “REEP”) may help lower your tax bill if you install solar roofing tiles or shingles. Aside from the environmental benefits of residential solar power – like reducing pollution, avoiding fossil fuels, and reducing your family’s carbon footprint – solar energy also has a tax benefit.

The downside is that it’s expensive to install a solar panel. Thankfully, this federal solar tax credit can offset some of the expense.

Generally, if you install renewable energy equipment on your property, you qualify for a percentage credit off the total cost of your solar system.

How does the solar tax credit work?

If you’re wondering what the solar tax credit is and when you can use it, look no further. The credit amount is determined by the date you installed the equipment. Solar customers can claim:

• 30% for solar energy systems placed in service in 2019
• 26% for solar PV systems placed in service in 2020 and 2021
• 30% for solar PV energy systems placed in service in 2022-2032
• 26% for solar PV energy systems placed in service in 2033
• 22% for systems placed in service in 2034

*This federal tax credit as part of the REEP credit applies for tax years 2017 through 2034.

If your solar tax credit was larger than income tax due, you can’t use the residual money to get money back from the IRS.

As a reminder, tax credits work like this: you can offset your overall taxable income by subtracting the amount from your tax liability. Learn more about tax credits.

Solar energy tax credit qualifications

Not all property qualifies for the federal solar tax credit. To be eligible, your property must be a cooperative apartment, condominium, house, houseboat, mobile home, or manufactured home approved by the Federal Manufactured Home Construction and Safety Standards.

You must also have qualified solar equipment. Here is the list of qualified solar equipment and other property that is eligible for the REEP:

• Qualified solar electric property that uses solar power to generate heated water or electricity
• Qualified geothermal heat pumps
• Qualified wind energy property or turbines that use wind to generate electricity for a dwelling unit
• Qualified fuel cell property
• Solar-electric collecting roofs and roof products
• Solar power storage equipment
• Solar installation (contractor labor costs)
• Qualified biomass fuel property

*Please note, leased solar energy systems don’t qualify for the solar tax credit.

What about claiming solar panel equipment on rental property you own?

While you can’t claim the federal solar energy credit on rental properties you own and rent out for 80% or more of the year, you can claim it for properties you live in for part of the year. The percentage you claim is reduced based on the months you live there.

For example, if you install qualifying solar equipment at a property you live in for half the year in 2021, you can deduct 50% of the 26% credit for the total cost of the solar equipment. So, if your solar system cost $20,000 in 2021, the full credit is $5,200, but you can only claim half of that – so the amount is $2,600.

How to claim the solar tax credit on your taxes

Use Part 1 of Form 5695 to determine your credit amount. There are two parts on a Form 5695.

Part 1:

The first part of the form is for the REEP. Enter the amount you spent on qualifying solar energy materials or installation or other qualifying equipment. On line 14, you should enter your credit limit, which is determined by your tax liability. On line 15, follow the instructions to enter the credit amount on Form 1040.

Part 2:

The second part of Form 5695 is for the nonbusiness energy property credit. This section is for the costs of heating and cooling-related home improvements you made to your property, such as new windows and insulation. Line 30 will be the number you add to your Form 1040. The maximum lifetime nonbusiness energy property credit is $500. Learn more about energy efficient tax credits.

More help with the solar panel tax credit

Now, back to Sid. Because he originally didn’t realize there were federal tax credit when installing solar energy property, he didn’t claim the solar tax credit on his 2021 tax return. Luckily, he can amend his return (for up to three years) with the Internal Revenue Service (IRS) to make sure he claims this valuable residential energy credit. If the credit is more than his 2021 tax liability he can claim the solar tax credit balance in the following tax year

And he didn’t go at it alone. He got the tax advice of a tax pro at H&R Block. In fact, with many ways to file your taxes, our pros can help you spot important federal and state incentives or tax deductions.

Make an appointment.

The post Conserve energy and your bank account with the solar tax credit appeared first on H&R Block.

Learn more about this valuable tax credit and its nuances here.

How much is the Child and Dependent Care Credit worth?

Currently, the Dependent Care Credit is 20% to 35% of qualified expenses. The percentage depends on your adjusted gross income (AGI). The maximum amount of qualified expenses for the credit is:

• $3,000 for one qualifying person
• $6,000 for two or more qualifying persons

How much you can claim phases out depending on your income.

Requirements for the Child Care Tax Credit

To claim this valuable tax credit, the following should all be true:

1. You and your spouse usually file as married filing jointly. (See Filing exceptions below.)
2. You provide the care so you (and your spouse, if married) can work or look for work.
3. You have some earned income. If you’re married and living together, both you and your spouse must have earned income. However, one spouse might be disabled or a full-time student at least five months of the year. If that’s the case, IRS assigns one of these earned income amounts to that spouse:
   1. The higher of $250 or actual income for the month for one child
   2. The higher of $500 or actual income for the month for two or more children
4. You and the person(s) being cared for live in the same home for more than half of the year.
5. The person providing the care can’t be:
   1. Your spouse
   2. Parent of your qualifying child under age 13
   3. Person you can claim as a dependent
6. If your child provides the care, they:
   1. Must be age 19 or older
   2. Can’t be your dependent

If you’re married but not filing jointly with your spouse, you can claim the credit if:

• You paid more than half the cost of maintaining a household for the year. Both you and the qualifying person must have used the home as your main residence for more than half the tax year.
• Your spouse wasn’t a member of the household during the last six months of the tax year.

Don’t leave money on the table

File your taxes to claim the Child and Dependent Care Tax Credit. Our tax pros can help you file in person or virtually, or you can file on your own online.

File now

Who qualifies for the Child Care Credit?

To claim a Child Care Credit for qualified expenses, you must provide care for one or more qualifying people. (See Qualified expenses section below)

Qualifying persons include:

• A dependent who’s a qualifying child and under age 13 when you provide the care. Usually, you must be able to claim the child as a dependent to receive a credit. However, an exception applies for children of divorced or separated parents. In those situations, the child is the qualifying child of the custodial parent for purposes of this credit. This applies even if the noncustodial parent claims the child as a dependent.
• Spouse or dependent of any age who’s both:
  • Physically or mentally incapable of self-care
  • Has the same main home as you do when you provide the care

Qualified expenses for the Child and Dependent Care Credit

Qualified child- or dependent-care expenses are those you run up while you work (or look for work). They should be related to well-being and protection. They include:

• Expenses for care provided outside of your home. This applies if the qualifying person regularly spends at least eight hours each day in your home. If the qualifying person receives the care in a dependent-care center, the center must comply with all relevant state and local laws. A dependent-care center is one that cares for more than six people for a fee.
• Expenses for in-home care. This includes expenses for:
  • Cooking
  • Light housework related to the qualifying individual’s care
  • The care itself
• Gross wages paid for qualified services, plus your portion of:
  • Social Security
  • Medicare
  • Federal unemployment taxes
  • Other payroll taxes paid on the wages
  • Meals and lodging for the employee providing the services

What expenses don’t qualify for the Child and Dependent Care Credit?

Unfortunately, these expenses don’t qualify for the Child and Dependent Care Credit:

• Transportation costs to and from the childcare facility
• Overnight camp expenses
• Expenses for the education of a child in kindergarten or higher
• Expenses for chauffeur or gardening services

The cost of before- or after-school programs might qualify if the program is for the care of the child. Education costs below kindergarten qualify if you can’t separate those costs from the cost of care. (A good example is nursery school.)

How to claim the Child Care Credit

Luckily, to claim this credit you only need to fill out one extra tax form. Complete Form 2441: Child and Dependent Care Expenses and attach it to your Form 1040 to claim the Child and Dependent Care Credit.

Bonus content: Employer-provided benefits

Some employers provide childcare benefits in addition to the Child and Dependent Care Credit. These are called employer-provided benefits and can include:

• On-site care for their employees’ children
• Direct payment for third-party care
• Accounts earmarked for childcare expenses. Employees can put money from their salaries into these accounts.

If the value of the benefits is more than $5,000, your employer will report everything over $5,000 as taxable income. If the value is less than $5,000, it’s not taxable income.

Some employers offer Section 125 plans. These are also called cafeteria plans or flexible spending accounts (FSAs). They allow employees to reduce their salaries for one or more nontaxable benefits. You can use common flexible spending accounts to pay childcare or medical expenses.

Your W-2, Box 10 will show the amount of child and dependent care benefits your employer provided. You can’t use expenses paid or reimbursed with these benefits to claim the childcare credit. Subtract the Box 10 amount from the amount of the child and dependent care credit you can claim. When your W-2 shows dependent care benefits, you must complete Form 2441 (Form 1040), Part III. This applies even if you’re not claiming a Child Care Credit.

Can you take a child care tax deduction?

No, there are no tax deductions available for child care for individuals—just a credit. However, you might qualify for other credits or deductions. To learn more, read about the top five common tax credits.

More help with claiming the Child Care Tax Credit

If you think you qualify for the Child Care Tax Credit or other tax credits like the Earned Income Tax Credit, or deductions, get help! With many ways to file your taxes with H&R Block, we can work with you in a way that best suits your needs to help maximize your tax credits and deductions.

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