Don't Miss Out on These Federal Income Tax Breaks if You Have a New Child or One on the Way
a new child can change everything about Our lives, including the amount of money we spend on our federal income taxes
After you spend the time preparing for your new child, taxes are probably the last thing on your sleep-deprived mind. But they shouldn't be. Your new child can save you money with tax credits and tax deductions. All new and prospective parents can use some help in navigating the tax code. So make sure you know about all the credits and deductions you can get for having your first or another child.
The following information is intended as a general guide. This information applies does not necessarily apply for adoptions, which we cover in a separate article. For any tax advice or questions, consult a tax advisor.
- Before You Do Anything Else, You Need to Get Your Child a Social Security Number
- The Dependent Exemption
- The Child Tax Credit
The first thing you need to do is to get your child his or her own Social Security number. This number is the only way the IRS can verify that the child exists and that you are eligible to receive the deductions and credits you're claiming.
Most hospitals will help you request your child's Social Security number at the same time you request a birth certificate. It can only benefit you to get it as soon as possible, since without it you will have to file a form (FSS-5) with the Social Security Administration. You can be fined $50 for every dependent you claim on your taxes who doesn't have a valid Social Security number and your refund could be significantly delayed.
The Dependent Exemption was eliminated for 2019. With it, you were eligible to claim this exemption for whichever tax year your child was born.
Beginning with Tax Year 2018, you may able to claim the Child Tax Credit if you have a qualifying child 16 years old or younger at the end of the year and if you meet other qualifications. The maximum amount per qualifying child is $2,000. Up to $1,400 of the credit can be refundable for each qualifying child as the Additional Child Tax Credit. A refundable tax credit may give you a refund even if you don't owe any tax.
Before you can claim the credit, you and/or your child have to meet the seven eligibility requirements set by the IRS. These are as follows:
- Age: The child has to be under 17 on December 31 of the tax year for which you want to claim the credit. If the child turns 17 on December 31, you can't claim the credit.
- Your Relationship with the Child: You can only claim the credit for your child, your stepchild, or a foster child placed into your care by an authorized state agency or court. You may have adopted a child through a legal adoption process. If this is the case, this process must either be concluded or ongoing by December 31 of the tax year for which you want to claim the credit.
- Financial Support: While not common, if the child supported him or herself with more than half of his or her own money, you don't qualify for the credit.
- Claiming as a Dependent: The child in question is eligible to be claimed as your dependent only if he or she is related to you by blood or by law and is under the age of 19. He or she can be claimed up to age 24 if he or she is a full-time student more than five months out of the year and has had to live in your household for more than half of the year. A child who has not supported him or herself financially for more than half the year or is permanently disabled may also be claimed.
- Citizenship: The child has to be a U.S. citizen, a U.S. national, or a U.S. resident alien.
- Residence: Your child has to have lived in your household for more than six months if you want to claim the credit. Any child born or who passed away during the tax year will be counted as having lived with you for the full year. You can still meet this requirement if you or your child was absent temporarily for the following reasons: attending school, going on vacation, medical or business reasons, military service, or incarceration in a juvenile facility. These circumstances may count as time the child lived with you.
- Family Income: If your modified adjusted gross income falls above a specific threshold per your tax-filing status, the amount you can get from the Child Tax Credit is lowered. This amount depends upon the final numbers. In addition, you can't collect the amount of the credit as part of a refund, so if you don't owe anything on this year's taxes, the credit is unused.
You may be able to claim the Child and Dependent Care Credit if you paid expenses for the care of a qualifying individual to enable you (and your spouse, if filing a joint return) to work or actively look for work. Generally, you may not take this credit if your filing status is married filing separately. However, there is an exception for certain taxpayers living apart from the spouse and meeting other requirements. The amount of the credit is a percentage of the amount of work-related expenses you paid to a care provider for the care of a qualifying individual. A qualifying individual for the child and dependent care credit is:
- Your dependent qualifying child who is under age 13 when the care is provided;
- Your spouse who is physically or mentally incapable of self-care and lived with you for more than half of the year; or
- An individual who is physically or mentally incapable of self-care, lived with you for more than half of the year, and either: (a) is your dependent; or (b) could have been your dependent except that he or she has gross income that equals or exceeds the gross income test amount, or files a joint return, or you (or your spouse, if filing jointly) could have been claimed as a dependent on another return.
The total expenses may not be more than $3,000 (for one qualifying individual) or $6,000 (for two or more qualifying individuals). Expenses paid for the care of a qualifying individual are eligible expenses if the primary reason for paying the expense is to assure the individual's well-being and protection. If you received dependent care benefits that you exclude or deduct from your income, you must subtract the amount of those benefits from the dollar limit that applies to you.
You must identify all persons or organizations that provide care for your child or dependent. You must report the name, address, and TIN (either the social security number or the employer identification number) of the care provider on your return. If you can't provide information regarding the care provider, you may still be eligible for the credit if you can show that you exercised due diligence in attempting to provide the required information. The care provider can't be your spouse, the parent of your qualifying individual if your qualifying individual is your child and under age 13, your child who is under the age of 19, or a dependent whom you or your spouse may claim on your return.
If you pay a provider to care for your dependent or spouse in your home, you may be a household employer. If you're a household employer, you may have to withhold and pay social security and Medicare taxes and pay federal unemployment tax.
Most single parents overlook the head of household tax break, which allows them to claim dependents, as well as other advantages. If you are considered unmarried, you may be able to file as head of household or as qualifying widow(er). To qualify for head of household status, you must be either unmarried or considered unmarried on the last day of the year.
If you live apart from your spouse and meet certain tests, you may be able to file as head of household even if you aren't divorced or legally separated. If you qualify to file as head of household instead of as married filing separately, your standard deduction will be higher. Also, your tax may be lower, and you may be able to claim the earned income credit.
You may be able to file as head of household if you meet all the following requirements:
- You are unmarried or considered unmarried on the last day of the year.
- You paid more than half the cost of keeping up a home for the year.
- A qualifying person lived with you in the home for more than half the year, except for temporary absences e.g. school. If the qualifying person is your dependent parent, he or she doesn't have to live with you.