Tax Credits for Working Single Mothers
Last updated: March 18, 2013 by Susan
For millions of American families — especially those headed by single women — tax season is full of stress and number crunching.
There are, however, some useful tax breaks that can significantly lower the amount of taxes to pay.
And, in some cases, give cash refunds to families in jobs that pay too little to live on.
In fact, at tax time, being a parent comes with certain perks.
As for tax year 2012, eligible families with dependent children could receive
- Up to $5,891 from the federal Earned Income Tax Credit.
- Up to $1,000 per child from the federal Child Tax Credit.
- Up to $2,100 from the federal Child and Dependent Care Tax Credit
One of the most common tax deductions for single mothers is the dependent exemption — $3,800 for each child until your child turns 19, or 24 if he’s a full time student.
What’s especially nice is that you can take one exemption for yourself to cover your basic living expenses, that’s $3,900 off your taxable income.
So if you are a mother with two qualifying children, you can deduct $11,400 in exemptions ($3,800 x 3 = $11,400).
Filing Taxes as a “Head of the Household”
As a single mother and the sole breadwinner in the family, the first thing you must do is to select “Head of the Household” as your filing status.
Filing as “Head of Household” has two benefits for single mothers. First, you’ll pay less taxes overall; and second, you’ll also be able to claim a significantly larger tax exemption.
For example, in 2012, taxpayers who use the head of household filing status may receive an $8,700 annual standard deduction. While, a single filer is only entitled to a $5,950 standard deduction.
Earned Income Tax Credit
EITC, the Earned Income Tax Credit is a tax benefit designed primarily to help low- to moderate-income individuals and families whose earned income falls below a certain limit.
It isn’t a welfare handout per se. Only people who work and pay taxes can claim it; creating an incentive for them, including many who are poor, to leave welfare for work.1
The EITC is “refundable,” which means that when EITC exceeds the amount of taxes owed, it results in a tax refund, whose amount varies by income, family size and filing status.2
For example, if your tax liability is only $736 and the credit you are allowed is $5,236, you may receive a refund check for $4,500.
Single parents with three or more children under age 19 who made less than $45,060 are eligible for a refundable credit of up to $5,891. Couples earning less than $19,190 qualify for a credit of up to $475. Married couples, however, must file taxes jointly.3
As noted from the graph above, your EITC grows with each additional dollar of earnings until it reaches the maximum value.
Forms 1040EZ, 1040A, or 1040 can be used to claim EIC without qualifying children. To claim the credit with qualifying children, 1040A or 1040 must be used as well as attaching Schedule EIC.
Child Tax Credit
If your child or children under the age of 17 (on the last day of the year), claimed as dependents and are US citizens, then you can qualify for Child Tax Credit.
This can reduce your taxes by up to $1,000 for each qualifying child. The child tax credit will be gradually reduced based on your income for the year until it reaches a threshold of $75,000 (by $50 for each $1,000 of income above that threshold amount).
Technically speaking, as your income increases, the exemption decreases proportionately. For some, utilizing the child tax credit can reduce their tax liability to zero.
Additional Child Tax Credit
The Additional Child Tax Credit is a refundable tax credit for people who have a qualifying child and did not receive the full amount of the Child Tax Credit.
Unlike the EITC, the Additional CTC is partially refundable. Families whose credit exceeds their tax liability can receive the remainder of the credit in the form of a refund not exceeding 15% of their earnings above $3,000.
For example, a single mother with two working full-time, year-round at the minimum wage of $7.25 an hour — and earning $14,500 per year — could receive 15% of $11,000, or $1,725, as a refund.
An additional refundable credit may be claimed on Form 8812, Additional Child Tax Credit 4 if your earned income was greater than $3,000.
Child and Dependent Care Credit
Paid a local daycare center to take care of your kid? Do you pay someone to care for your child so that you can work or look for work?
If you do, you may claim up to $3,000 of expenses paid in a year for one qualifying child under 13 or $6,000 max per family.
This works best when you file as a Head of the Household, and can cut your taxes by up to 35% of what you’ve paid for the service.
No matter what your tax status is, take a little time to make sure that you’re taking advantage of all the benefits available to you – especially if this is the first time you’ll be doing your taxes as a single mother.
If you can afford it, it might even be worth spending a little money to seek advice from a professional tax consultant to make sure you are not missing out on a refundable tax credit worth up to nearly $6,000.
- Center on Budget and Policy Priorities, Policy Basics: The Earned Income Tax Credit [↩]
- Use the EITC Assistant to find out if you qualify. [↩]
- IRS, Publication 596, Earned Income Credit (EIC) [↩]
- IRS, Schedule 8812 (Form 1040A or 1040), Child Tax Credit [↩]