Raising a grandchild can be tough financially, but grandparents should be aware that there is a tax credit available that could help them. Working grandparents who are supporting their grandchildren may qualify for the earned income tax credit, which could reduce the amount they pay in taxes by thousands of dollars or allow them to receive a refund.
The earned income tax credit is a benefit for working people with low to moderate incomes and dependents, and this includes grandparents. (Taxpayers without a dependent may also qualify, but it is more difficult.) To be able to claim the tax credit, you must be raising a child who meets the following criteria:
- Is your son, daughter, adopted child, stepchild, foster child, brother, sister, half brother, half sister, step-sister or a descendent of any of them, such as a grandchild or niece or nephew
- Is younger than 19 at the end of the year, younger than 24 and a full-time student at the end of the year, or any age and permanently and totally disabled
- Lives with you for more than half the year
In addition, to qualify for the tax credit your income must be below certain limits, depending on how many dependents you have. The limits for 2020 are as follows:
- One child. Filing as an individual, your income must be less than $41,756. Filing jointly, your income must be less than $47,646.
- Two children. Filing as an individual, your income must be less than $47,440. Filing jointly, your income must be less than $53,330.
- Three or more children. Filing as an individual, your income must be less than $50,594. Filing jointly, your income must be less than $56,844.
The maximum amount of the tax credit also depends on how many dependents you have. In 2020, the following are the maximum credit amounts:
- $6,660 with three or more qualifying children
- $5,920 with two qualifying children
- $3,584 with one qualifying child
For more information from the IRS about the tax credit, click here.