Welcoming a new child into your family is a mixture of joy, excitement, and added responsibility.
There are plenty of things to keep in mind when you leave the security of the nurses at the hospital, knowing that you are now totally responsible for this new, little human.
With all of this new stuff floating around in your brain, it’s easy to forget about taxes and finances.
But even if you’re exhausted from the midnight feedings, make sure to take the time to follow these important tax tips for new parents. Your future self will be thankful.
Get Your Paperwork in Order
Almost everything else on this list will be useless to you and your child if you don’t obtain a Social Security number for your new addition.
Normally, if you chose a hospital birth, you’ll be asked by one of the nurses or admins at the hospital if you want to apply for a SSN for your new baby.
If you choose to apply at the hospital, you can expect to receive your child’s SSN card in the mail within a few weeks.
If you gave birth outside of a hospital, like at a birthing center or a home delivery, or even if your child was born or adopted outside of the United States and you’re an American citizen, you should contact the Social Security Administration directly and follow their application procedures to ensure your child is issued a Social Security number.
Remember, receiving medical coverage for your child, claiming them as a dependent on your taxes, and applying for necessary government services all depends on your child receiving a Social Security number.
Adjust Your Tax Life
Adding a new child to your family can change many things around your house, as well as change many things about how you file your taxes.
Remember to adjust your tax-withholding status at your job. File an updated W-4 with your employer to lessen the amount of taxes taken your of your paycheck.
Claim your child as a dependent on your next tax return and reduce your taxable income by $3,950.00 (for tax year 2014). Just make sure only one parent makes the claim.
Check to see if you qualify for the Child Tax Credit and receive up to a $1,000 tax credit from the IRS.
As far as your filing status, a married couple may not have to change anything, but a single parent could now file as the Head of Household.
You can also take advantage of the Child and Dependent Care Credit if you pay someone to care for your little person so that you can work and earn an income.
Along these same lines, check with your employer about a child care reimbursement plan which could allow you to set aside non-taxable income to pay for your child’s care.
Saving for the Future
Having a new baby might be the best time to take a giant leap in your financial maturity. After all, it’s not only your future that you’re responsible for, but your child’s future as well.
When your child arrives in the world, why not start a college/education savings plan such as a 529 plan or an Education Savings Account.
Both types of savings plans grow tax-deferred, and withdrawals for qualified expenses are tax-free.
The main difference is that the 529 plans are for college and university expenses, and an Education Savings Account can be used for college, grade school, and high school.
If you’re not yet comfortable with investment-style savings accounts, you can always open up a simple savings account for your child at your local bank.