Tax deductions for dependent children
Using the personal deduction for dependent children is one of the most effective ways to legally increase your net salary. In this way, the state provides tax relief to parents, leaving them with a larger portion of their earned money to more easily cope with the costs of upbringing and education.
What is a child deduction and how does it work?
The basic personal deduction is a certain fixed amount on which no income tax is paid. Each registered child on your tax card (or equivalent in Serbia) carries a certain coefficient or a given amount that is added to your basic deduction. No tax is calculated on that total amount! The smaller your tax burden, the larger the net paid into your account.
Growth of deduction depending on the number of children
- First child: Basic prescribed addition to the deduction
- Second child: Increased addition
- Third child: Even larger progressive addition
- Fourth and every subsequent child: Maximum prescribed additions
Note: In most systems, coefficients or amounts grow progressively. If you have three children, your total additional deduction is the sum of the deductions for each of them individually listed.
Who is considered a dependent child?
The relevant tax authorities clearly define the conditions under which children can be your deduction. Children are considered dependent members until the end of regular schooling. However, the key limiter is their own annual income.
Annual child income limit
If your child (e.g., student) earns income greater than the legally set limit within a year, the child may lose the status of a dependent member for that entire year! The parent then loses the right to the deduction and will have to return the tax difference.
Smart division of deductions between parents
One of the most useful methods for family tax optimization is sharing the personal deduction for children with a partner/spouse. The deduction for the same child can be divided in any ratio, e.g., 50% - 50%, or 70% - 30%.
Why and when to share the deduction?
If the parent with whom the child is registered has a low salary, the total personal deduction might be higher than the tax base. This means that part of the child deduction is wasted because there is not enough income to absorb it!
Transfer the unused percentage of the child deduction to the parent who has a higher gross salary to maximize the tax savings of the entire household.
Forgot to register the child on time?
Don't worry - if you didn't submit the request via digital services (eUprava) immediately at birth, you can do it later. You will be able to report the child retroactively through the annual tax return, and the state will return the overpaid tax.