Having your first child is an exciting time for new parents. The package you had been waiting for for 9 months finally arrives and your family feels more complete! And, perhaps, a little more hectic. As you deal with the joys of parenthood and some sleepless nights, you might not be thinking about the upcoming tax season. I mean, how could you think of tax deductions when you are dealing with your bundle of giggles and poo? Well, it might actually be worth your while to start thinking about your taxes, particularly if you aren’t aware of the tax perks you are entitled to as a new parent!
What’s this?! Did I just say you are entitled to tax perks? Who knew having a baby would bring joy to your life and your tax season? Read on for some important information you don’t want to miss out on. If you aren’t a parent but are thinking about having children, these points might help you as you make your decision!
You can’t get any of the tax benefits for your baby without a social security number. Without one, you can’t claim them as a dependent on your tax return. Luckily, getting one is pretty simple. Most of the time, you can request one at the hospital when you receive the birth certificate. If that didn’t happen, don’t worry, you can still do it. You’ll need to fill out the SS-5 Form with the Social Security Administration.
A big way your new child can provide tax perks is through the Dependency Exemption. When you file your child as a dependent, this could protect around $4000 from taxes which could be a $1000 savings for you. Note, these figures are dependent on you being part of the 25% bracket.
A new baby means you can pocket a little bit more of your pay every month. When you fill out a W-4, you can claim a withholding allowance for dependents. Make sure you file a new form with your employer once your child is born so you don’t miss out!
As of 2018, if you make less than $110,000 as a couple ($75,000 as a single), you can a child tax credit worth, at max, around $2000. This credit has doubled since 2017 when it was around $1000. As a credit, this means it will apply towards the taxes you own. So if you owe $4000, this could reduce it to $2000 depending on the credit you get. The credit is also refundable so if you own less than the credit, you will get the rest back in your refund. Now that is a pretty sweet deal.
The EITC is not specific to having children--It is a tax credit for low income families that is often extremely helpful. To get the EITC you have to make under $15,720 as a single or $20,950 as a couple. What having a child does is greatly increase the amount of income you can make and still qualify for the EITC. After a child, as a single, you need to make under $40,320 or under $46,010 as a couple. You can claim a max of just under $3500 credit if you have a child!
If you are single and have a child, you can change your filing status to Head of Household. This will give you greater tax deductions and a better bracket. This status is not limited to being a parent: it applies any time you pay for over half of another person’s housing costs. A baby definitely qualifies!
Hopefully, these points have started the wheels turning in your head at all the possibilities that are now open to you as a new parent. When the new year starts and you’re gathering all your receipts and W-2s, remember these credits and deductions that could really help you save quite a bit of money. And, with a new baby, extra money can be so important. Instead of checking out signature loans, you can depend on a bigger tax refund to help you in the new year!