Claiming a child on taxes: Tax tips & rules for claiming a newborn
First of all, if you recently had a baby, congratulations! Becoming a parent is an exciting and rewarding experience. Still, it comes with new responsibilities, like claiming a child on your income taxes. Luckily, there are a few strategies to help maximize your tax benefits and minimize your tax liability as a new parent. Here, we’ll talk about what to be aware of when you file your taxes as a first-time parent… Read along to discover the details!
Who knew babies come with paperwork and to-dos? When it comes to income tax, there are a few important steps to take to make sure you’re eligible to claim them.
1. Apply for a Social Security number
First up – apply for your baby’s Social Security number. You will need this number before doing anything else. If you’re giving birth at a conventional hospital, hospital staff often prompt you to do this. You can also visit or contact the Social Security Administration to fill out Form SS5, the Application for a Social Security Card. Once you have applied, the number could take about two weeks to arrive.
Sometimes, you might not get your child’s SSN before you file your tax return. If you haven’t received the SSN by the original tax deadline for the given tax season, you should file an extension using Form 4868.
Determine if your newborn is “yours to claim” on taxes. There are several tests to determine if your child is your tax dependent. A qualifying child must meet specific tests: relationship, age, support, abode, U.S. citizenship, and the joint return test. For newborns, you don’t have to worry about the age test (where your dependents must be younger than you and under 24 to claim). In addition, your newborn isn’t married, so there’s no joint return to consider. If your baby was born in the U.S., they are a U.S. citizen or resident.
If you have a newborn but get divorced within the same tax year, there are specific rules to follow for tax purposes. It comes into play when you and your former spouse file your own returns and want to claim your newborn as a dependent on your tax returns. The Internal Revenue Service (IRS) generally determines who can claim the newborn by residency. The parent with whom the child lived the most during the tax year (custodial parent) claims them as a dependent. The custodial parent can allow the noncustodial parent to claim the child by signing Form 8332 and giving the form to the other parent.
A different rule called the “Tiebreaker rule” comes into play when you lived together but don’t file a return as Married Filing Jointly. Then, the parent who lived with the baby the longest can claim the baby as a dependent. If you both lived with the baby the same amount of time, the parent with the higher adjusted gross income can claim the newborn as a dependent child.
Once your baby is assigned a Social Security number and meets the requirements, you can claim your newborn on your taxes.
Don’t skip these steps! If you claim your newborn, but don’t include their Social Security number (SSN) on the return, you’ll miss important tax credits and deductions. That’s right! As a dependent, your child can help you reduce your taxable income and increase your tax refund.
Possible changes in filing status
If you are single, had a baby, and now support that child in the home where you live, you’re likely eligible to use the Head of Household (HOH) filing status. This filing status gives you a larger standard deduction and more favorable tax brackets. Thanks to your new bundle of joy, you could pay less federal tax as HOH than you would as Single for the same income.
If you are married, having a child will not generally affect your filing status.
Having a baby is often associated with being eligible for tax breaks and tax benefits. What you might not know is that tax rules change frequently, so the types of tax breaks and the amounts can change as well.
For tax years prior to 2018, you were able to take a dependency exemption, which sheltered a few thousand dollars of your income from tax. Under that previous law, you could get the full-year exemption, no matter when your child was born or adopted within the tax year.
While the dependency exemption is not available for tax years 2018-2025, there is an abundance of other tax credits and deductions to take, outlined here:
Babies are oh-so-cute, but they can be expensive.
That said, you’ll want to know about the Child Tax Credit, which could lower your tax bill up to $2,000 per qualifying child (if your income is not too high). What’s more, this credit is partially refundable. So, you may receive a refund even if you don’t owe any taxes, and you may even get money back as a refund. Paying less in income tax could mean higher quality diapers or nicer toys for your little one!
If you paid a qualifying individual or organization to care for your child while you work, you might be able to claim the Child and Dependent Care Credit on your federal tax return. It’s based on your amount of earned income and can be up to 35% of your qualifying childcare expenses, up to a max expense of $3,000 for one child, and up to a max expense of $6,000 for two or more children.
Note: The Child and Dependent Care Credit could be reduced if you utilize tax-free dependent care benefits from your employer.
Hospital fees and other medical expenses can add up when you give birth to a baby. For this reason, consider taking advantage of the medical expense deduction if your expenses exceed 7.5% of your AGI.
You might be surprised to find that the cost of breast pumps and lactation supplies also count as medical expenses. These expenses may help you get over the hump to take the deduction.
Note: To claim the medical expense deduction, you need to itemize deductions instead of claiming the standard deduction. If you don’t have enough medical and other expenses to itemize deductions, out-of-pocket medical expenses for your baby can be paid or reimbursed through your Health Savings Account (HSA).
While the following are not tax breaks, there are a few other tax related topics you may want to know about.
- You may also accept gifts (in money or property) from friends, grandparents, and other qualifying relatives that are income-tax-free to you and your child.
- You can participate in a Qualified Tuition Plan (QTP, also called “a 529 plan”). This valuable account helps you set aside money for your child’s future education expenses. While there is no immediate federal tax break on your federal return, earnings in the account grow tax-free, distributions used for education costs are tax-free, and you may get a state deduction or credit for your contributions.
- It’s worth noting that the Earned Income Credit doesn’t require a dependent in order to take.
Being a new parent brings many changes and responsibilities, including taxes. By following the tax tips mentioned above, you can maximize tax credits and minimize your tax liability, saving your hard-earned money in the long run.
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