Welcoming a new baby to the family is a joyous occasion. It’s a year full of celebration, milestones, and firsts. My husband I used to joke that the kids were totally worth it for the tax deductions they got us.
Just kidding….we probably woulda had them anyway. 🙂
And yes, we 100% put our first born child in this tax deduction onesie! As a tax accountant, it was my solemn sworn duty!
The New Baby Tax Deduction Scramble
Jokes aside, newborn babies do come with tax implications. If you have a January through spring baby, you have a little bit of time to research new baby tax deductions. But if you have your little one later in the year, you don’t have much time to figure out what to do.
Many questions crossed our minds after the birth of our first child – in November, no less. We didn’t have much time to get our act together before taxes were due!
Here are some the questions that raced through our minds regarding tax deductions for babies:
- What do you claim on your tax return for a newborn baby?
- Do you need to know their Social Security number?
- Do I claim full amounts even if the baby was born late in the year?
- How the heck will I have the mental energy to file this tax return when I’m operating on minimal sleep?!
Ok, so that last one wasn’t a real tax question, but it was the truth! 🙂
Dependent Exemption for Newborns
Your baby, assuming he or she meets the IRS dependency test, will get you a sweet dependent exemption. In 2014, each child reduces your taxable income by $3,950 if your adjusted gross income is $152,525 or less. The 2015 dependent exemption will be $4,000.
The dependent exemption is phased out starting at a certain income level, so keep that in mind if you make over $150k per year.
In order to claim an exemption for your new baby, you will need to have a Social Security number for him or her. The hospital discharge paperwork should have included information on obtaining your baby’s Social Security card. I believe our hospital team actually submitted the form on our behalf. But if this wasn’t the case for you, you can get the information you need to request a SSN for your little one from the Social Security Administration website, SSA.gov.
Other Baby-Related Tax Deductions, Credits, and Benefits to Consider for Your New Family
In addition to the whopping personal exemption you get for each child, here is a longer list of tax benefits available to families with children. For more information on all of these, see the instructions to Form 1040 and Publication 501 for further explanation. IRS.gov is also a great resource for general research.
- Child tax credit – You can get the full credit even if your child was born late in the year. It’s subject to income limitations. See IRS Form 8812.
- Credit for child care expenses – Expenses you incur in order to return to work after your baby is born can earn you a tax credit. It is also subject to income limitations. See IRS Form 2241.
- Flex spending account – If you or your spouse has a job that offers a flexible spending account for child care expenses, you can divert some of your income to that account and pay for child care costs with pre-tax dollars. The only drawback is that the amount of costs covered by your flex account reduces how much you can claim in child care expense credits. Review the rules for this in the tax return instructions.
- Medical expense deduction – If you are like me and had to pay quite a bit out of pocket to have each child, there’s a possibility you can claim some of these medical expenses as an itemized deduction on Schedule A, subject to restrictions, of course. See instructions for Form 1040, Schedule A.
- Earned Income Credit – It’s also worth noting that your eligibility for claiming the Earned Income Credit (for people with incomes below $52,427 in 2014) changes based on the number of children you have. Everything you need to know about the EIC is included in Publication 596.
More Tax Resources
Hopefully this post gives you some insight as to what to be on the lookout for because the last thing you want is to forget to keep some of your hard-earned money! Especially when you have diapers to buy. 🙂
If you use a tax preparation software to prepare your tax return, you’ll be guided through the ins and outs of eligible tax deductions for your new baby.
IRS Publication 501 – Exemptions, Standard Deduction & Filing Information (2014 tax year edition)
Form 1040 – Individual Income Tax Return (2015 not ready yet…I’ll update this when it is!)
Disclaimer: Although I am a tax accountant, I am not YOUR tax accountant. Before relying on any advice on this blog, please consult a CPA who will be able to advise you on your particular set of tax circumstances.
This post is included in the Complete Guide for Stay-at-Home-Moms, a collaborative effort by over 50 mom bloggers
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