Tax Hacks for New Parentstax breaks | December 15, 2016 | By Susannah McQuitty
So we’re getting close to the new year, new you – and you’re coming at it with a new kid! Seems like a lot has happened since New Year’s back in January, and somehow you’ve got to figure out how to do your taxes as a parent for the first time.
No worries. There are a lot of sleepless nights that come with babies and more than enough hoops to jump through as a new parent, but we’re going to walk through some tax basics to minimize the tough stuff.
Get a Social Security Number before tax season
Right off the bat, you’ll need to have a Social Security Number for your child in order to claim them as a dependent on your tax return. If you didn’t have the hospital send the appropriate information to the Social Security Office when your child was born, you can fill out the application from the Social Security Administration and mail or take it to your local Social Security Administration office.
Cash in with the extra personal exemption
Now let’s move into the actual tax return process, and the first news is good news: Adding a new kiddo to your return will automatically reduce your taxes, thanks to personal exemptions. For each person in your family, including that baby bundle, you get to reduce your taxable income by $4,050. If you have a child born during the year, you get the full exemption for the tax year, it doesn't matter what day the child was born.
Check out tax breaks for children
There are two tax credits that immediately show up on the radar when children enter the picture, and those are the Earned Income Credit (EIC) and the Child Tax Credit (CTC). First, let’s look at how having a kid can affect the Earned Income Credit. As a parent, the income limit for the EIC gets higher, as does your credit amount. So you can make more money from your job, still qualify for the credit, and get more money for the credit.
Next up is the Child Tax Credit, which provides up to $1,000 for each eligible child dependent. Just like with the EIC, there are income limitations on who can claim the credit. Also, the credit is limited by the amount of tax you owe, and if that’s the case, you might also qualify to take the refundable portion, which is called the Additional Child Tax Credit.
Investigate child care credits
Making sure your children are cared for while you work can be costly. That’s why the Child and Dependent Care Credit is such a great tax credit for working parents. The maximum is $3,000 for one dependent, and $6,000 for two or more dependents. The credit is reduced at higher income levels, and if your employer pays for a dependent care benefit plan, your maximum credit is reduced by that amount. Still, it’s a great credit and definitely something to look into.
As you journey into the brave new world of first-year parenting, it may at times feel like you’re one step behind. Don’t give up; you’re learning, so be kind to yourself. Starting may not be easy, but it’s worth it – and we’ll be here with tax tips to smooth your sailing during the first few months of 2017.