Posted by Abundant Wealth Planning LLC

Claiming a Newborn on Your Taxes

Claiming a Newborn on Your Taxes

So, you have welcomed a new member into your family. Congratulations. We hope you are aware of the tax breaks that the new baby offers.

There are many ways you can prepare for a coming baby. Indeed, you would have extra medical expenses. Preparing for the baby also involves factoring the additional medical costs into your taxes.

When you have a new child, you can increase how much you receive without affecting your Earned Income Tax Credit.

Once your child is born at any time within the year, you can claim the child as a dependent. The same rules apply for children that are below 19 or are below 24 as full-time students. Once the baby is born, the parent(s) can immediately claim the child as a dependent. 

That's even if the child is born on December 31, although claiming a dependent on your tax returns requires that the child lives with you for at least half of that year. Newborns, though, are the exception to this rule. So as long as the child is born in that year, up to 11:59 on December 31, you can claim the child as a dependent.

A few exceptions are if the child is immediately taken into foster care or one of the parents takes custody of the child in the case where they are not married. In that case, the IRS sorted several technical areas to determine which of the parents has the most rights to claim the child when filing taxes. 

For people earning higher than $400,000, the child tax credit begins to disappear as the aim is to provide relief to people with lower incomes.

Social Security Number?

Your baby needs a social security number for you to benefit from while filing your return. This should not be a problem, as most children get their SSN immediately after birth. Your child won't be entitled to tax credits without a social security number. If your child doesn't get a social security number before filing your returns, you may ask for an extension using Form 4868. With that, you have some extra time to get your child's number. Not just your newborn, but all dependents attached to you must have the social security number.

Child Tax Credit

Another credit you can take advantage of is the child tax credit. In 2021, the Child Tax Credit was increased to $3,600 per child for children under 6. The qualifications are that a child is a dependent under you, newborns qualify.

Marital status

If you have a baby as a married person, your filing status will not be affected in any way. If you, however, have a child as a single person, you may file as a single person. Alternatively, you may assume the head of household, which gives a greater advantage. As a single person who is "head of household," the responsibility of taking care of the new baby is entirely yours.

Child care reimbursement account

Since you'll have several bills to pay when you have a new child, you can take advantage of windows that reduce the amount of money that can be taxed in your income. One such means is the child care reimbursement account. With this account, you can keep up to $16,000 of your income in a particular arrangement that is tax-advantaged as long as the money is used to pay for caring for the child. The money is not subject to state or federal taxes and can save you a lot of funds. If you're saving for just one child, the maximum amount you can keep in the account is $10,500. You, however, can only enroll for the account through your employer. If you have a child, you can amend your account to reflect the development.



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