Tax Tips for Single Parents

The tax code is one of the main ways that the government tries to burden and benefit certain people.  In the case of single parents, there are a number of tax tips to help ease the tax burden.  Make sure that you take advantage of these tax breaks.

First, there is an entire category of tax filing status for single parents.  It is the “Head of Household” category, and it provides for reduced tax rates and a higher standard deduction than single filers.  Almost all single parents will qualify as head of household, but just to be sure, you must be “considered unmarried,” pay at least half the costs of maintaining a home, and have a dependent child who actually lived with you for at least half the year.

In addition to the normal exemption for a dependent child, a single parent should also make sure to claim a child tax credit and to deduct for dependent care expenses.  The child tax credit is an additional tax credit (as opposed to an exemption or deduction) that reduced your taxes dollar for dollar up to $1000 per child.  The child must not have been over 17 at any point in the tax year and you must have been providing at least 50% of the support for that child, and it is phased out if your family income is more than $110,000.

The credit for child care expense is another great tax break for single parents.  If you are a single parent who works, and if you need to put your child under the age of 13 in child care so that you can work, then the costs of the child care is partially credited back to you as well.  The amount that you receive back depends on your income, and can range from 25% to 30%.  The daycare provider also has to be a “qualifying provider” which means that it cannot be a relative or another dependent.  In other words, you cannot pay one older child to provide daycare for a younger child and then claim a credit for 30% of that cost.

Many single parents are also eligible for the Earned Income Tax Credit.  The EITC is a refundable tax credit that is designed to help families and individuals who are working, fall into the lower income brackets, and have qualifying children.  As with the child tax credit, the test for a qualifying child is more strict than the test for dependency: the child must live with you for most of the year also.  The EITC is available only for people whose earned income and adjusted gross income fall below certain thresholds.

If you are a single parent, and despite all the exemptions, deductions, and credits listed above you still have tax liability, your next step to save on taxes is to take advantage of a health flexible spending plan or dependent care savings plan if your employer offers them.  The health flexible spending plan allows you to take money out of your paycheck before taxes and put it into a special fund for health related expenses.  Although you cannot pay health insurance premiums with it, many other day-to-day costs such as prescription co-pays, doctor’s office co-pays and deductibles, and even some general health goods that you find at your local pharmacy can all be paid by that account.  This can save tax money by getting what amounts to a deduction for those expenses without itemizing them.  The same is true for the costs of dependent care expenses in a dependent care savings account.

Being a single parent is hard enough without additional tax burdens.  The tax code is designed to provide as much help as possible for single parents, especially single parents with limited incomes.  All of these credits and deductions are in addition to the other credits and deductions available to all taxpayers.  A good tax preparation software program or a tax preparation service can help work through the details.  And that’s one more tax tip for single parents: check around to see if there are any legal aid organizations that will give you free help with your taxed to save from spending money on a tax preparation service.