Welcoming a new baby changes your life in many ways – including your tax return. If you’re a new parent or expecting soon, here are some tips that might ease the financial load. There are many things that you should know when the next tax season comes around.
Claim Your Child as a Dependent
As soon as your baby is born, they are officially a tax-dependent. Even if they arrive on December 31st, you can still claim them for the entire tax year. Be sure that they meet these requirements to qualify:
- You will need to apply for their social security number and birth certificate for proof of identity.
- The child must live with you more than half of the year, and you must provide over half of their financial support.
Child and Dependent Care Tax Credits
When it comes to childcare and raising children, the government offers tax credits to help ease any financial strain. The IRS offers up to $2,000 per qualifying child under the age of 17. As long as they meet the requirements of being your dependent, they qualify. In order to receive this benefit, filing your annual tax return is required — even if your income is low or you don’t owe anything.
Did you pay for daycare, preschool, babysitters, or a nanny so you could work? The good news is that you can get a credit up to 35% of qualifying care expenses. The maximum amounts you can receive are:
- $3,000 for one child
- $6,000 for two or more children
This credit is non-refundable, but you can expect a reduction on your tax bill.
Tip: The care provider needs to be reported with either their SSN or EIN, so be sure to keep your records throughout the year.
Earned Income Tax Credit (EITC)
If your income is on the lower side, having a newborn may make you eligible for the Earned Income Tax Credit, which can save you thousands.
For 2024 taxes, the EITC ranges were:
- Up to ~$4,000 for one child
- Over $7,000 for three or more children
The best part of this? It’s available even if you don’t owe any taxes.
Update your W-4
With a new dependent and credits, it’s a good idea to update your W-4 forms at your work. Now having a child, you may want less tax withheld from your paycheck now, giving you more take-home pay each month. Adjusting the form can also help avoid a big tax bill later, especially if both parents work.
Use the IRS Tax Withholding Estimator or talk to a tax professional.
Medical Expenses: Save Those Receipts
If you had a complicated pregnancy or high out-of-pocket costs, you might be able to deduct qualified medical expenses that exceed 7.5% of your adjusted gross income. Specifics include:
- Hospital bills
- Fertility treatments
- Breast pumps and lactation supplies
- Prenatal visits
- Labor and delivery costs
Keeping your receipts and documentation are very important if you’re looking for medical deductions.
Consider a 529 College Savings Plan
While it might seem early to start a college fund, it’s better to start it earlier in life than later. It will ultimately give the child an open door to college if that’s what they decide to do. A 529 plan doesn’t help with federal taxes now, but many states offer tax deductions or credits for contributions. Additional benefits include:
- Earnings grow tax-free
- Withdrawals are tax-free when used for qualified education expenses
You can also open a 529 before your child is born, using yourself as the initial beneficiary, then switch once the baby arrives.
Final Tips for New Parents
We know you’re going to have a lot on your plate with a newborn, but by knowing these things ahead of time can save you the stress and headache later. Some final things to note:
- File taxes early if you’re expecting a refund
- Double-check your filing status on your W-4 forms
- “Head of household” may apply if you’re unmarried and paying more than half of household costs
- If unmarried, decide which parent will claim the child
Don’t wait until it’s time to file, get ready and make the necessary changes now. If you have questions, feel free to reach out to us by using the form below!
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