Your New Baby Can Bring You Joy and Savings
There are no words that can describe the feeling of becoming new parents. The happiness a new baby brings into a family is a wonderful thing. However, the cost of having a child can be a shock to new parents.
Diapers, day care, and doctor bills all cost a fortune. The good news is, there are many wonderful tax breaks for new parents that can help offset some of the expense of a new baby. Here’s more about those tax benefits and how you might qualify.
The first benefit to having a new baby is your baby qualifies as a new dependent. The IRS gives a deduction of $3,900 for 2013 for each one claimed on your tax return, including you and your spouse.
Your new baby adds another exemption, therefore reducing your taxable income. There are some rules about who qualifies as a dependent, but most of the time, children will qualify.
Head of Household Status
The second benefit for some new parents is a change in filing status. If you are not married or have been separated from your spouse for the last 6 months of the year, your child may qualify you for the Head of Household filing status.
This filing status could be better than filing as single and decrease your taxable income. If you are married and living with your spouse, you are not allowed to claim head of household.
Earned Income Tax Credit
Tax benefit number three for your new baby is the Earned Income Tax Credit. For many families, this credit can be worth several thousand dollars in tax refund money.
It is what is called a refundable tax credit and can be received even if the credit exceeds your tax liability. To qualify, you must have what the IRS considers a qualifying child, or relative, for whom you provided more than fifty percent of their support.
The credit is also based on an income scale and depends on other factors such as filing status. You can only get the Earned Income Credit if you worked and have earned income, such as W2 earnings. You cannot get earned income credit if you had non-earned income such as social security or unemployment.
Child Tax Credit
The fourth tax benefit for a new baby is the Child Tax Credit. This is a credit the IRS gives for a qualifying child up to $1000 per child. This is a non-refundable credit, which means the credit can be used to decrease any taxes owed, or even eliminate them. However, unlike the refundable earned income credit, it cannot produce a refund.
So, for example, if your taxes owed is zero, you cannot get the child tax credit as a refund. But if your taxes owed is $2,000.00 and you qualify for the $1,000.00 child tax credit, your taxes owed could be reduced to $1,000.00. The child tax credit only applies to children under the age of seventeen and is also based on your income.
Child and Dependent Care Credit
The fifth tax benefit of a new baby is the Child and Dependent Care Credit. If your child under 13 goes to day care, you can claim expenses paid for day care on your tax return up to $1,050 for one child and $2,100 for two or more children.
The credit can be claimed even if the child stays with an individual or a relative during the day and there is no age limit if your child is disabled. The relative cannot be your spouse, the parent of the qualifying child, someone you claim as a dependent, or your child who will not be 19 or older by the end of the tax year.
The individual would have to provide their social security number to give to the IRS on your tax return to show the money was paid.
The Child and Dependent care credit cannot be claimed if only one parent worked. Both parents must be able to prove income in order to show the need for day care. In some cases, even summer camps or day camps can qualify for the dependent care credit.
As you can see, there are many wonderful tax benefits to having a new child in your family and you don’t need to know all of the details and tax laws behind these tax benefits.
TurboTax will get you all of the tax deductions and credits you deserve so you can save more money for your family.