When you become a new parent, you quickly learn how joyous, exciting, and downright scary it is to be responsible for the care and nurturing of a child. And it doesn’t take long to learn it’s expensive as well. Luckily, there are tax breaks to help you defray some of those costs.
Let’s start with the dependency exemption. A new baby gives you one more deduction of $3,950 to reduce your income. And you get to claim the exemption for the entire year even if your baby was born part way through the year.
If you are not married or were separated from your spouse for the last six months of the year you can claim head of household status. Those tax rates are lower than the single rates, which will save you even more in taxes.
Depending on your income, you may also qualify for the child tax credit of up to $1,000 per child. This credit is better than a deduction, because it offsets your taxes dollar-for-dollar. To qualify, your child must be under age seventeen and your income must be under a certain level.
But wait, there’s more! Let’s move on to the earned income tax credit, which is a real bonanza for many families. The earned income credit also offsets your taxes dollar-for-dollar. And as a special bonus, the earned income credit is refundable, so you can claim it even if it exceeds your tax liability. There are special rules for claiming this credit, including having a qualifying child or relative, your earned income, your other income, and your filing status.
If your children are in day care, you know how expensive that can be. But the child and dependent care credit lets you get some of that cost back if you work. Until your child turns 13 (no age limit for disabled children), you can claim up to 35% of the first $3,000 of expenses, and that increases to up to 35% of $6,000 for two or more children.
Your child doesn’t have to go to formal day care. Individual care qualifies, even if the caregiver is a relative or a child who is 19 or older. And nursery school, private kindergarten, after school programs and some camps qualify as well.
To claim the credit you must indicate the social security number of the caregiver on your tax return, and if you are married, both you and your spouse must have worked to show the need for day care.
If you’re a parent with a new bundle of joy or not so new bundles of joy, TurboTax will help you get the tax deductions and credits, you’re eligible for.