When it comes to taxes, dependents can affect your return in ways many families don’t expect. Whether you’re claiming a young child, a college student or an aging parent, understanding how deductions and credits apply may change how much you owe or receive. From the standard deduction rules to tax credits like the child tax credit, learning how these benefits work together may help you make informed financial decisions for your household.
A financial advisor can help you review tax strategies to determine how they align with your assets, income and long-term financial goals.
How the Standard Deduction Works With Dependents
When it comes to filing taxes, dependents don’t always follow the same standard tax deduction rules as adults. The IRS allows dependents to claim a standard deduction, but it’s typically limited to the greater of $1,350 (for the 2025 tax year) or their earned income plus $400, up to the full standard deduction for single filers. This means that if a dependent earns income from a part-time job, their deduction can rise, but it’s capped at the same maximum deduction available to a single taxpayer.
Understanding the distinction between earned and unearned income is key. Earned income includes wages, salaries and tips, essentially money received from working. Unearned income, on the other hand, covers dividends, interest, and capital gains. The standard deduction for dependents primarily increases based on earned income, but unearned income may trigger what’s known as the “kiddie tax,” where investment income over a certain threshold is taxed at the parent’s rate.
For parents or guardians, the standard deduction for dependents can influence whether it’s worth having a child files their own taxes. If a dependent earns enough income that taxes are withheld or they owe tax, filing allows them to claim their deduction and potentially get a refund. It can also simplify recordkeeping and ensure compliance if the dependent has investment or freelance income.
What Tax Credits Can You Claim for Your Dependents?
Tax credits can be powerful tools for reducing your tax bill if you’re supporting dependents. Unlike deductions, which lower your taxable income, credits directly reduce the amount of tax you owe, sometimes even resulting in a refund. Understanding which credits apply to your situation can help you maximize your savings each year.
- Child tax credit (CTC): The CTC offers up to $2,200 per dependent qualifying child under age 17 for the 2025 tax year. Up to $1,700 of that amount may be refundable, meaning you could receive it even if you don’t owe any taxes. The credit phases out for higher-income households, so eligibility depends on your adjusted gross income (AGI).
- Credit for other dependents (ODC): This credit may apply when a dependent doesn’t meet the age requirement for the CTC, such as an older child, college student or elderly parent. The credit is worth up to $500 per dependent and is nonrefundable. To qualify, an adult dependent cannot have gross income above $5,200 and may need to meet additional support and filing requirements.
- American opportunity tax credit (AOTC): The AOTC is designed to ease the burden of college expenses for eligible students in their first four years of higher education. You can claim up to $2,500 per student for qualified expenses like tuition, books, and fees. Up to 40% of this credit is refundable, which can be a significant boost for families covering college costs.
- Lifetime learning credit (LLC): The LLC offers up to $2,000 per return for qualified education expenses, including tuition for undergraduate, graduate, or professional courses. Unlike the AOTC, there’s no limit on the number of years you can claim it. It’s ideal for parents paying for continuing education or career-related courses for themselves or their dependents.
- Child and dependent care credit: This credit helps offset up to 35% of qualifying childcare expenses for working parents. Eligible costs can include daycare, babysitters, or after-school care for dependents under 13—or care for a disabled dependent of any age. The amount you can claim depends on your income and total childcare expenses.
How the Child Tax Credit Works
The CTC is one of the most valuable benefits available to families, designed to help offset the cost of raising children. For the 2025 tax year, eligible parents can claim up to $2,200 per qualifying child under the age of 17. Of that amount, up to $1,700 may be refundable, meaning even families with little or no tax liability could still receive a portion of the credit as a refund.
Eligibility for the CTC depends on your income level. The credit begins to phase out once your modified adjusted gross income (MAGI) exceeds $200,000 for single filers or $400,000 for joint filers. For every $1,000 above these thresholds, your available credit decreases by $50. This means higher-income households may see a reduced or eliminated benefit, but most middle-income families still qualify for the full amount.
To claim the CTC, your dependent must meet several criteria. The child must be under age 17 at the end of the tax year, have a valid Social Security number, and be your son, daughter, stepchild, foster child, sibling, or descendant such as a grandchild. They must also live with you for more than half the year and be financially dependent on you.
Tax Strategies If You Have Dependents
Having dependents can open the door to a range of tax-saving opportunities, but making the most of them requires some strategic planning. From timing income to coordinating credits and deductions, families can often reduce their taxable income and even increase their refund through smart, proactive decisions throughout the year.
If you have multiple dependents, be strategic about how you claim available credits. The CTC, child and dependent care credit, and education credits all have specific eligibility rules and income limits. Understanding how these interact, especially if your income approaches phaseout thresholds, can help you plan when to incur certain expenses or adjust your withholding to maximize benefits.
Parents can manage costs and lower taxable income by using 529 plans for tax-free education savings and dependent care flexible spending accounts (FSAs) for pre-tax childcare expenses. Contributions to a 529 grow tax-free when used for qualified education costs, and FSA funds must be coordinated with the CTC because you cannot claim both for the same expenses. These accounts can support both near-term needs and long-term goals.
Bottom Line
From the standard deduction to the CTC and education-related benefits, families may have several opportunities to lower their taxable income and manage annual tax costs. The most effective approach often involves staying organized, keeping records of eligible expenses and being aware of income thresholds or phaseouts that could limit certain benefits. Reviewing these rules throughout the year, rather than only at tax time, may also make it easier to plan ahead and identify opportunities that fit your situation.
Tax Planning Tips
- A financial advisor can help you review your tax options and coordinate a strategy with your long-term financial goals. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you want to know how much your next tax refund or balance could be, SmartAsset’s tax return calculator can help you get an estimate.
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