NC Tax Credits for Grandparents Raising Grandchildren

Claiming Your Grandchild as a Dependent

You don't need legal custody to claim a grandchild on your federal and North Carolina state taxes, but you must meet the IRS tests for the tax benefit or filing status you're claiming. The qualifying child tests include relationship, age, residency, support, and joint-return requirements.

A grandchild can meet the relationship test for a qualifying relative, but that alone does not make the child your dependent. The qualifying-relative tests also include a gross-income limit, that you provide more than half of the child's support, and that the child is not another taxpayer's qualifying child. Living with you for at least seven months may meet the residency test for a qualifying child, but the other tests still apply.

What if the biological parent also wants to claim the child? IRS tiebreaker rules give priority to a parent when the child qualifies as that parent's qualifying child and also qualifies as someone else's. If the parent did not live with the child for more than half the year, the parent generally fails the qualifying-child residency test; you can claim the child only if the child meets your own qualifying-child or qualifying-relative tests.

Keep documentation: school enrollment records showing your address, pediatrician records, and the caregiver affidavit you used for school enrollment all help establish that the child lived with you.

Child Tax Credit

For tax year 2025 (filed in 2026), the Child Tax Credit provides up to $2,200 per qualifying child under age 17. Up to $1,700 of this is refundable as the Additional Child Tax Credit, meaning you can receive it even if your tax liability is zero, if you meet the refundable-credit requirements.

To claim it, you need a valid Social Security number for the child, issued for employment by the due date of your 2025 return (including extensions). Individual Taxpayer Identification Numbers (ITINs) don't qualify for the CTC. If your grandchild doesn't have a Social Security number yet, apply through the Social Security Administration — you can do this alongside applying to become the child's representative payee if they receive survivor or SSI benefits.

Income limits apply: the credit begins phasing out at $200,000 of modified adjusted gross income for single filers ($400,000 for married filing jointly). Most grandparents on fixed incomes are well under these thresholds.

Head of Household Filing Status

Filing as Head of Household instead of Single gives you a larger standard deduction and wider tax brackets, which reduces your tax bill. You qualify if you're unmarried (or considered unmarried), paid more than half the cost of maintaining your home for the year, and had a qualifying dependent living with you for more than half the year.

A grandchild may meet the qualifying-person and residency tests if the IRS's dependent rules are satisfied. The "cost of maintaining a home" includes rent or mortgage, property taxes, utilities, food, and home repairs. Keep records showing that you paid more than half.

Earned Income Tax Credit

The EITC is one of the largest refundable credits available, but it requires earned income — wages, salary, or self-employment income. Social Security retirement benefits, pensions, and SSI don't count as earned income.

If you're a retired grandparent with no earned income, you won't qualify for the EITC even if you're raising grandchildren. But if you work part-time, even modestly, you may qualify. For tax year 2025, a single filer with one qualifying child can receive up to $4,328 in EITC; the earned-income and AGI limit is $50,434.

North Carolina State Tax

North Carolina uses a flat income tax rate of 4.25% for 2025. The state provides a standard deduction of $12,750 for single filers and $25,500 for married filing jointly. The state doesn't have its own separate child tax credit, but your federal filing status and dependent claims carry through to your NC return.

If the child receives a Work First Child-Only grant, that payment is not taxable income to you or the child. NC GAP maintenance payments are also not taxable income.

Tax credits can put significant money back into a kinship household — in some cases more per year than the Work First Child-Only cash grant provides monthly. The NC Kinship Financial Help Guide includes a section on cross-program income rules that explains how benefits and tax credits work together.

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