If you're a parent who's been doing some back-to-school shopping lately, you know that raising a child is expensive. Whether real or virtual, that overflowing cart is just one small part of a much larger bill that you have to pay over the better part of two decades. And it's natural to wonder: What does it really cost to raise a child today? Here's a closer look at the financial impact and how proactive tax planning can help ease your burden.
A 2026 report from LendingTree estimates that families now spend an average of $303,418 to raise a child to age 18 — roughly a 2% increase from last year's estimate. The analysis is based on a dual-income married couple with one child and a household income of $99,999. It also factors in the federal Child Tax Credit (CTC) and other tax benefits but isn't adjusted for inflation.
Despite the sticker shock you may be feeling, the true cost of raising a child is likely higher. LendingTree includes expenses such as rent, food, day care through age five, apparel, transportation and health insurance premiums. But most parents know the list doesn't end there. After-school programs, sports teams, music lessons, summer camps, tech devices and travel can add thousands more each year.
And because the analysis stops at age 18, it excludes the cost of college. According to a recent College Board study, the average annual cost of attending a public four-year school is $29,910, while a private institution averages $62,570. This is before any financial aid and covers tuition, fees, room and board, books, and personal expenses.
Although there's no silver bullet to managing the financial strain of raising a child, the tax code does offer some relief in the form of tax credits. These are notably valuable because credits reduce your tax liability dollar-for-dollar. Here are four that every parent should know:
1. The CTC. You could say this is the big one. It helps eligible families reduce their taxes for each qualifying child. Last year's One Big Beautiful Bill Act (OBBBA) made permanent the increases to the CTC made under the Tax Cuts and Jobs Act (TCJA) of 2017. For 2026, the amount available is up to $2,200 per qualifying child under age 17. That dollar figure will be adjusted annually for inflation.
The CTC phases out for higher-income taxpayers, but the OBBBA also made permanent the TCJA's much higher income ranges for that phaseout. So, more parents will continue to benefit. In addition, the OBBBA made permanent the annual inflation adjustments to the limit on the refundable portion of the credit (up to $1,700), which you can claim for a tax refund even if you owe no federal income tax.
2. The Credit for Other Dependents. In the tax year that your child turns 17, he or she will no longer qualify for the Child Tax Credit. But you may be able to claim the Credit for Other Dependents. The OBBBA made this TCJA-created credit permanent at $500, but it won't be annually adjusted for inflation. You may be able to claim it for each qualifying dependent other than a qualifying child, such as a child who's over the age limit but still qualifies as a dependent or a dependent elderly parent. This credit is subject to the same income-based phaseout as the CTC.
3. The child and dependent care credit. If you pay for care for a child under age 13 or another qualifying dependent so you can work, look for work or attend school, you may be able to claim this credit. For 2026, it can be worth up to 50% of qualifying expenses for lower-income taxpayers, with the percentage phasing down as income rises. Certain middle-income taxpayers may be eligible for a percentage between 20% and 35%. The percentage is 20% of qualified expenses when adjusted gross income exceeds $105,000 ($210,000 for married couples filing jointly).
Qualifying expenses are still capped at $3,000 for one qualifying person or $6,000 for two or more individuals, so the credit likely won't cover every dollar you spend on child care. Nonetheless, it can provide meaningful relief during a child's earliest years, when care costs are often highest.
4. The adoption credit. If you don't actually have a child yet, but are seriously considering adopting one, be sure to read up on this. Families that adopt may qualify for the adoption tax credit or an employer-provided adoption assistance program income exclusion.
For 2026, the maximum credit is $17,670 of qualifying expenses incurred to adopt an eligible child under age 18 or with special needs, and $5,120 of that amount is refundable. Such expenses include agency fees, court costs, legal fees, travel (including meals and lodging), and readoption expenses for a foreign child. This credit is subject to an income-based phaseout, too.
If your children decide to go to college, you may be able to claim certain credits to help offset the high costs of higher education. First, there's the American Opportunity Tax Credit. It covers 100% of the first $2,000 of tuition and related expenses and 25% of the next $2,000 of expenses. The maximum amount per student is $2,500 annually for the first four years of postsecondary education in pursuit of a degree or recognized credential.
Second, there's the Lifetime Learning Credit. If you're paying postsecondary education expenses beyond the first four years, check whether you're eligible for it — which can amount to up to $2,000 per tax return.
Be aware that income-based phaseouts apply to both. If you don't qualify for one of the credits on your tax return because your income is too high, your child might.
The largest single child-related expense that many parents will face is paying for college. That's why it's important to start saving early — and in a tax-advantaged manner. Two popular options are:
Section 529 plans. You can choose either a prepaid tuition plan to secure current tuition rates or a tax-advantaged savings plan to fund college expenses. Which one to pick depends on your situation and goals. (Ask your tax advisor for help.)
Although contributions to a 529 plan aren't deductible for federal purposes, any growth is tax-deferred. (And some states do offer breaks for contributing.) The plans usually offer high contribution limits, and there are no income limits for contributing. There's also generally no beneficiary age limit for contributions or distributions. What's more, you can control the account — even after the beneficiary is of legal age — and make tax-free rollovers to another qualifying family member.
Essentially, these accounts allow you to take federal-income-tax-free distributions to cover qualified education expenses incurred on behalf of the account beneficiary. There are no income limits on the tax-free distribution privilege.
Important: 529 funds aren't only for college; they can be used for eligible K-12 education expenses up to an annual limit. The OBBBA increased the annual withdrawal limit for qualified elementary and secondary school tuition expenses to $20,000, starting in 2026.
Coverdell Education Savings Accounts (ESAs). These are similar to 529 savings plans in that contributions aren't deductible for federal purposes. ESAs allow funds to grow tax-deferred, and distributions for qualified education expenses are income-tax-free. An ESA is particularly worth considering if you want direct control over how and where your contributions are invested, as well as if you want to fund elementary or secondary education expenses beyond what a 529 plan allows.
There are some downsides, however. The $2,000 annual limit on total contributions is relatively low, and how much you can contribute is subject to an income-based limit. Also, amounts left in an ESA when the beneficiary turns age 30 generally must be distributed within 30 days, and any earnings may be subject to tax and a 10% penalty.
Important: You may be able to take both a higher-education-related tax credit and a tax-free 529 plan or ESA distribution as long as expenses paid with the distribution aren't used to claim the credit.
Parents can now set up a Section 530A account (also known as a "Trump Account") for anyone with a Social Security number who'll be under age 18 at the end of the tax year. Annual contributions of up to $5,000 can be made until the year the beneficiary turns age 18, at which time the accounts generally become subject to the traditional IRA rules. Contributions aren't deductible, but earnings grow tax-deferred as long as they're in the account.
Some people might assume 530A accounts are also education funding vehicles, but they're probably not the best option for this purpose. Both 529 plans and ESAs also allow tax-deferred growth, but, as mentioned, withdrawals from these accounts are tax-free if they're used for qualified education expenses. On the other hand, withdrawals from a 530A account are generally taxed as ordinary income (except for any portion funded by after-tax contributions). If used for education expenses, 530A funds may be eligible for an exception to the early withdrawal penalty. But 529 plan and ESA distributions offer other advantages beyond this.
All that said, don't ignore the benefits that 530A accounts offer in helping your child build up savings from a very early age. One in particular is that U.S. citizen children born between January 1, 2025, and December 31, 2028, can potentially qualify for an initial $1,000 government-funded deposit. Thanks to the power of compound interest, even if no one ever contributes to the account, that $1,000 alone can grow to a substantial balance.
The financial challenges of getting a child from diapers to a diploma aren't likely to diminish anytime soon. But understanding all the federal and state tax breaks available to you can make a meaningful difference. Work closely with your tax advisor to find relief where you can get it and make every dollar count.
Get in touch today and find out how we can help you meet your objectives.
