Family Tax Strategies: Credits, Education Savings And Care Benefits

Many families unknowingly leave thousands of dollars on the table each year—tax savings that could go toward tuition, childcare, or even future investments. From the Child Tax Credit to 529 college savings plans, the tax code offers practical, accessible benefits for households of all sizes and income levels. But these opportunities are often buried in complex IRS language, misunderstood, or overlooked entirely.

At James Moore, we help individuals and families uncover and apply these benefits in ways that support both short-term savings and long-term goals. Whether you’re raising toddlers, supporting teens in college, or managing multigenerational care, the tools are there—you just need to know how to use them.

Understanding The Updated Child Tax Credit

The Child Tax Credit (CTC) has long been a foundational benefit for American families. In 2025, it continues to offer substantial support—but the rules have shifted under the One Big Beautiful Bill Act (OBBBA), which took effect July 4, 2025.

Previously, families could claim up to $2,000 per qualifying child under age 17, with up to $1,600 of that amount refundable depending on income and earned income thresholds. Under the OBBBA, the refundable portion has been made more accessible to low- and moderate-income families by adjusting the earned income threshold to $2,500.

However, the credit begins to phase out for individuals with adjusted gross income (AGI) over $200,000, or $400,000 for joint filers. These limits remain unchanged, making income planning crucial for high-earning households.

For children with Individual Taxpayer Identification Numbers (ITINs) instead of Social Security numbers, families are no longer eligible for the CTC. They may, however, qualify for the Credit for Other Dependents, which offers up to $500 per dependent.

We recommend reviewing eligibility annually, especially as your income or family situation changes. Visit the IRS Child Tax Credit page for current thresholds and requirements.

Child And Dependent Care Tax Benefits

The cost of child and dependent care — be it for a toddler in daycare or a parent with special needs — can be staggering. The Child and Dependent Care Credit provides meaningful relief. Unlike the CTC, this credit specifically offsets the cost of care services needed so you (and your spouse, if filing jointly) can work or look for work.

You can claim up to 35% of $3,000 in care expenses for one qualifying person, or $6,000 for two or more, depending on income. The percentage decreases as income rises, bottoming out at 20% for higher earners. Qualifying expenses include:

• Licensed daycare centers
• Before- and after-school programs
• In-home babysitters or nannies (with proper documentation)

Additionally, if your employer offers a Dependent Care Flexible Spending Account (FSA), you can contribute up to $5,000 per year pre-tax, reducing your taxable income. However, you can’t claim the tax credit on expenses reimbursed through an FSA. So coordination matters.

Education Tax Benefits: What Families Should Know

Education-related credits and deductions continue to be an important component of tax planning for families with students in higher education. The IRS offers two primary credits:

American Opportunity Tax Credit (AOTC)

Available for students in their first four years of postsecondary education, the AOTC offers a credit of 100% of the first $2,000 in qualified education expenses and 25% of the next $2,000, for a total of up to $2,500 per eligible student. It’s partially refundable (up to $1,000), which means families can benefit even with limited tax liability.

Lifetime Learning Credit (LLC)

The LLC is more flexible. It can be used for undergraduate, graduate and professional coursework, including part-time enrollment. The credit is worth up to $2,000 per tax return, but it’s nonrefundable and phases out at lower income levels than the AOTC.

As of 2025, the AOTC phases out between $80,000–$90,000 (single) and $160,000–$180,000 (married filing jointly). For the LLC, phaseouts start at $80,000 and cap at $90,000 for single filers.

For full eligibility rules and qualifying expenses, review the IRS Education Credits page (IRS, 2025).

Using 529 Plans And Coverdell ESAs

529 plans remain one of the most powerful tools for saving for future education costs, offering tax-free growth and tax-free withdrawals for qualified education expenses. Contributions are not federally deductible, but many states offer tax deductions or credits.

What makes 529 plans so versatile today is their expanded usage:

• Tuition and fees for college, vocational school, and graduate programs
• Up to $10,000 per year in K-12 tuition
• Student loan repayments (up to $10,000 lifetime per beneficiary)
• Apprenticeship program costs recognized by the U.S. Department of Labor

An alternative, the Coverdell Education Savings Account (ESA), allows for up to $2,000 per year per child, with similar tax advantages. These accounts can also be used for elementary and secondary school expenses. However, they come with income limits and age restrictions not imposed on 529 plans.

Planning Strategies For High-Income Families

For higher-income households, phaseouts and caps on tax credits present a challenge. But these strategies can help.

Gifting Strategies Through 529 Plans

The IRS allows contributors to 529 plans to “superfund” by making five years’ worth of contributions at once without triggering gift tax. For 2025, that means contributing up to $90,000 per child (or $180,000 per couple) under the annual exclusion limit.

Employing Dependent Care FSAs

Business owners may establish a Dependent Care FSA for employees and participate themselves. This allows for up to $5,000 in pre-tax dependent care expenses, lowering both personal and corporate tax burdens.

Nonrefundable Credit Offsets

High earners who phase out of the AOTC or CTC may still benefit from state-level education incentives, tuition discounts or charitable giving strategies that qualify as itemized deductions.

You can compare 529 plan performance, fees and state-specific benefits using tools like the Saving for College comparison tool.

Take Control Of Family-Related Tax Savings Today

Whether you’re navigating child-related credits, planning for care or building an education savings strategy, the IRS offers substantial, legal ways to reduce your burden and improve your financial position.

At James Moore, we work closely with individuals and business owners to ensure that every qualifying dollar is put to use, from maximizing credits to aligning savings vehicles with your broader goals.

Talk with our tax team about how we can help you reduce your tax bill and improve your financial outlook. Contact a James Moore professional today.

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