There’s nothing more thrilling than becoming a parent. It’s a time for celebration, connection, and adjusting to new responsibilities—as well as new opportunities.
Having a child impacts everything—including your taxes. You may have filed taxes for years, but if this is your first year doing so with a newborn, you’ll have to consider a few new things. Yes, taxes become slightly more complicated once you become a parent. But here’s the good news: the IRS offers credits and other deductions designed to help out parents with less tax liability.
When you were young, you were likely claimed by a parent or other adult on their personal tax return as a dependent. You probably weren’t aware of this until you officially became an adult and started to have to file your own tax returns.
Now that you’re a parent, you can use this same benefit to your advantage! The IRS enables parents to claim children—or other people they provide more than half the support for—as dependents on their tax returns. However, in order to qualify, you must make sure the child qualifies as a dependent.
If you haven’t already done so, be sure to apply for a new Social Security number for your child. (You’ll need this SS number in order to complete taxes with a dependent.) To receive a Social Security number, you can contact the Social Security Administration and fill out Form SS5. It generally takes two to three weeks to receive a new number in the mail.
Children can only be claimed as dependents if they spend at least half of the year living under the same roof. Any child that was born in the year, regardless of what month, qualifies as having lived with the parent for more than half a year—even if the birthdate falls in December.
In addition to being able to claim a newborn as a first-time dependent, you may also have your filing status change. For example, parents that previously filed as single taxpayers can change their status to Head of Household (HH) under certain conditions.
The Head of Household status is worth taking advantage of because it may place you in a more favorable tax bracket due to the larger standard deduction. Along with claiming a child as a dependent, this step can reduce tax liability substantially. Parents that are already married before having a child will probably not need to worry about changing their status—unless a separation or divorce is occurring.
The Child Tax Credit is one of the most advantageous credits that parents use each year. This credit can lower your tax bill as much as $2,000 per qualifying child. There’s no reason not to take advantage of applicable tax credits. The money is provided by the IRS—and instead of going toward taxes, it can be invested in more practical things like diapers and baby formula.
Another tax credit to consider is the Earned Income Credit (EITC). Married filing jointly couples that earn a combined income of more than $20,950 automatically disqualify for EITC. However, parents of a newborn have a far greater chance of qualifying for EITC. For example, the income threshold limit is $40,320 for single filers with one child—and $46,010 for joint filers. Make sure to double-check that you qualify.
One last important tax credit worth mentioning for new parents is the Child Care Credit. This credit grants an additional tax break to people that work—and also need child care to look after a baby while they’re away.
The Child Care Credit can provide between $600 to $1,050 if you pay for the care of a child under the age of 13. This range is even higher if you pay for the care of multiple children. In fact, those with an adjusted gross income of $15,000 or less can claim a credit of up to 35 percent of qualifying costs.
There are several other ways that parents of newborns can get help with taxes owed. For more guidance and support on managing taxes for your new family, be sure to contact our team at Levy & Associates. We’re available by phone (800-TAX-LEVY) or online at www.www.levytaxhelp.com.
Levy & Associates is available for free initial consultations. We’re happy to answer any questions you have about the audit process or address any concerns about your specific situation.
There’s never a good time to be audited, and the time-consuming process will take away from your business or family if you try to face it alone. Let us handle and coordinate communication, so you can return to your daily life.