What Parents Need to Know About Taxes in 2025

On any given day, I may need to replenish my stash of string cheese (seriously — how many of these can one toddler eat?) or I may choose to treat my kids to a trip to a museum downtown. As parents, we have plenty of ways we want or need to spend our hard-earned cash. When tax season comes around, taking advantage of as many credits and deductions as you can may help you hold onto more money for your family to enjoy. Of course, you could also direct any savings toward your children’s future use.

These are some of the tax breaks parents in particular might want to know about, since many are intended especially for when you’re raising kids.

(Note: All links and figures verified as of January 2025.)

Tax Credit vs. Tax Deduction

Both tax credits and tax deductions can affect your total taxes.

A tax deduction works by reducing your taxable income. So a $1,000 deduction doesn’t put $1,000 back in your pocket — it just means you won’t get taxed on that portion of your income. If your tax bracket means you pay 15 percent, your taxes would go down by $150.

A tax credit directly lowers the taxes you owe. So a $1,000 credit means you have $1,000 less on your final tax balance.

The most common deduction is the standard deduction, which for tax year 2025 is $30,000 for married couples filing jointly and $15,000 for people filing separately.

Child Tax Credit

One way the government enables many families to lower their tax bill is by offering a tax credit for each qualifying child at home. The maximum Child Tax Credit (CTC) is $2,000 per qualifying child under age 17. The Additional Child Tax Credit (ACTC) is the refundable part of the credit, and it is worth up to $1,700 per child for 2024 taxes. The CTC applies to a broader range of families because the income threshold is higher than some other tax credits. The maximum income was $200,000 for single filers and $400,000 for married couples filing jointly.

A qualifying child doesn’t have to be your biological son or daughter. Qualifying children also include other minor dependents, including a stepchild, eligible foster child, minor siblings (including step- and half-siblings), nieces and nephews or grandchildren. Any qualifying child needs to have a Social Security Number. There are rules about financial support and how long they live with you that helps define who counts as a dependent qualifying child. In addition to a federal CTC, 16 states offer their own child tax credits:

• Arizona

• California

• Colorado

• Idaho

• Illinois

• Maine

• Maryland

• Massachusetts

• Minnesota

• New Jersey

• New Mexico

• New York

• Oklahoma

• Oregon

• Utah

• Vermont

Income limits, age requirements and child tax credit amounts can vary widely by state, so check with your state to find details.

Tax Credit for Childcare Expenses

The Child and Dependent Care Credit allows you to claim up to $3,000 for one qualifying child or dependent, or $6,000 for two or more people, with the total amount not to exceed 35 percent of your childcare expenses.

Overnight summer camps and care from certain relatives (e.g., the child’s parent, or a sibling under age 19) don’t qualify for the credit, but summer day camps may qualify. Grandparents and various other family members aren’t listed as ineligible care providers, so if you pay your family members to watch your children, you may be able to qualify for the credit. You can check if you’re eligible for the tax credit and how much you may be able to claim.

Earned Income Tax Credit

If you earn low to moderate income, you may be eligible for an additional tax break. The Earned Income Tax Credit (EITC) may lower the tax you’ll pay or increase your tax refund. To qualify, you need to meet certain limits for your earned income and investment income. The income limits, and the maximum credit amount you can claim, depends on how many children or other dependents you have.

For tax year 2024 (for which the tax return is due April 15, 2025), the maximum credit for families who qualify for the EITC is:

• Zero qualifying children: $639

• One qualifying child: $4,213

• Two qualifying children: $6,960

• Three or more qualifying children: $7,830

For tax year 2025, the credit rises to:

• Zero qualifying children: $649

• One qualifying child: $4,328

• Two qualifying children: $7,152

• Three or more qualifying children: $8,046

There may be additional qualifying rules for military members, clergy and people with disabilities, so check all details to see whether you may be able to claim this credit.

Higher Education Credits

Sending your child to college is a proud moment as a parent — and a potentially stressful one. Several tax credits may help reduce your taxes during your child’s higher education years.

The American Opportunity Tax Credit (AOTC) offers up to $2,500 per eligible student if you pay toward your child’s higher education tuition. Students need to be enrolled at least half-time to pursue a degree or “other recognized education credential.” You can claim a credit for 100 percent of the first $2,000 you paid toward your child’s “qualified education expenses” (e.g., tuition, books and equipment) and 25 percent of the next $2,000.

The Lifetime Learning Credit (LLC) applies if you pay education expenses for yourself, your spouse or a dependent enrolled in an eligible educational institution. The LLC is worth up to $2,000 per tax return and can apply to undergraduate, graduate and professional degree courses. Like the name suggests, there’s no cap on how many years you can claim this credit. If your family is pursing lifelong learning, this credit may be available to you.

For both the AOTC and LLC, there may be income limits wherein the credits phase out or are no longer available.

Medical Deductions

Wiping runny noses and checking temperatures is part of any parent’s life. But if you’re dealing with more serious medical bills in your family, there may be a way to deduct some costs from your taxes.

If more than 7.5 percent of your adjusted gross income went to medical bills, you may be able to claim some itemized deductions for certain medical or dental expenses. Examples include hearing aids, cost and maintenance for a wheelchair or costs for a special education school your child attends because of a physical or mental disability.

Health savings accounts (HSAs) may be an option for some families to contribute money for health expenses. Contributions to an HSA are tax deductible. Contribution limits for tax year 2024 are $4,150 if you cover only yourself, and $8,300 for HSAs offering family coverage. For 2025, this rises to $4,300 for yourself and $8,550 for family coverage.

Save for Retirement to Reduce Taxes

Planning for your long-term future is part of keeping your family’s finances healthy. Saving for retirement can help you prepare a more secure future, and it can have the added benefit of lowering your taxable income now.

If you contribute to a 401(k) plan offered through your employer, your pre-tax contributions may come directly out of your paycheck. You won’t pay taxes on that money until retirement, when you may be in a lower tax bracket. The money you save now reduces your taxable income dollar for dollar. For tax year 2025, you can save up to $23,500 in employer-offered plans like 401(k) or 403(b) plans, up $500 from 2024.

The IRA contribution limit is $7,000 in 2024 and 2025. This can be another way to grow your money tax deferred for the future and lower your taxable income in the here and now.

Some families who meet income requirements may also be able to claim a saver’s credit for putting money aside for the future. The saver’s credit is calculated based on a percentage of your retirement contributions. The lower your income, the higher percentage the credit may be. The maximum possible credit is $1,000, or $2,000 for married couples filing jointly.

A tax professional can help you find and claim the credits or deductions you’re eligible for. As you prepare for tax season, make a list of the tax breaks that may apply to your family. You may be able to take advantage of credits the government has designed for families like yours.

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