Colorado Tax Credits for Kinship Caregivers Raising a Relative's Child

Tax Credits You May Be Missing

Most grandparents and relatives raising a child know about public benefits like Colorado Works and Medicaid. Fewer realize they may also qualify for federal and state tax credits that put real money back — sometimes thousands of dollars — at filing time. The catch: you generally need to claim the child as a tax dependent, and that decision affects other benefit eligibility. Here's what's available and the trade-offs.

Child Tax Credit (CTC)

For tax year 2025, the federal Child Tax Credit provides up to $2,200 per qualifying child under 17. To claim it, the child must live with you for more than half the year, must not provide more than half of their own support, and you must claim them as a dependent on your return.

For kinship caregivers, this credit is significant. A grandparent raising two grandchildren could receive up to $4,400. Part of the credit is refundable (the Additional Child Tax Credit), meaning you can receive it even if you owe no federal income tax.

Earned Income Tax Credit (EITC)

The EITC is designed for low-to-moderate income workers. If you have earned income (wages or self-employment), claiming a grandchild as a qualifying child can substantially increase your EITC amount. For tax year 2025, a single filer with one qualifying child could receive up to $4,328, with the credit phasing out as income approaches $50,434.

Grandparents on pure Social Security retirement (no earned income) don't qualify for the EITC, since it requires wages or self-employment earnings. But if you work even part-time, the credit can be worth pursuing.

Child and Dependent Care Credit

If you pay for child care so you can work or look for work, the federal Child and Dependent Care Credit covers a percentage of those costs — up to $3,000 in expenses for one child or $6,000 for two or more. This is separate from CCCAP; you can use both, though you can't claim the credit for expenses already covered by the subsidy.

The Trade-Off: Claiming the Child as a Dependent

Here's where it gets complicated. Claiming the child as your tax dependent triggers these credits but also changes the income calculation for Health First Colorado (Medicaid). Under MAGI rules, if you claim the child, your income enters their Medicaid household determination. If you don't claim them, your income stays out.

For a grandparent with moderate income, claiming the child could push the child above the 142% FPL Medicaid threshold (though CHP+ covers up to 260% FPL). For a low-income caregiver, claiming the child may not affect Medicaid at all but could unlock thousands in tax credits.

There's no universal right answer — it depends on your income level and the child's other coverage options. A free tax preparation service like VITA (Volunteer Income Tax Assistance) can run both scenarios for you.

Colorado State Tax Benefits

Colorado has its own Child Tax Credit for eligible children under age six and its own EITC, with separate eligibility and filing rules. For tax year 2025, the state EITC was 50% of the federal EITC. For tax year 2026, the Family Affordability Tax Credit is paused and the state EITC is 25% of the federal EITC.

For a broader view of all the financial support available to kinship caregivers in Colorado — benefits, credits, and programs — see our Colorado Kinship Financial Help guide.

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