A New Parent’s Guide to Taxes | Personal Finance | mooresvilletribune.com – Mooresville Tribune

A New Parent's Guide to Taxes

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Becoming a new parent can be very rewarding. But there’s no question that parenting comes with a lot of firsts that can bring on anxiety — including preparing for your new status on your tax return.

Fortunately, we’ve put together a guide to help you file your taxes with ease so you can embrace the precious moments with your child instead of scouring through thousands of pages of the tax code.

Image source: Getty Images.

Obtain a Social Security number

This is the magic nine-digit number you’ll need to unlock the tax benefits of having a child. Form 1040, the main form most people use to file their tax returns, requires a social security number for each dependent you want to claim on your tax return. The simplest way to get a social security number for your baby is to request it at the same time you apply for the birth certificate at the hospital.

Update your W-4 tax form

You most likely completed the IRS W-4 form if you started a new job. As a new parent, you’ll need to update the form to account for having a baby.

The Form W-4 is the Employee’s Withholding Certificate. It’s an important form for taxpayers because it determines how much federal income tax an employer should withhold from your paycheck. You can adjust your W-4 anytime during the year but it’s best to do it as soon as possible to ensure the proper amount of taxes are deducted from your paycheck.

Review your tax filing status

Your tax filing status matters. It can give you a chance to claim a bigger standard deduction and fall into better tax bracket buckets.

Let’s say you’re single and you have a child. You just moved from the single filing status to the head of household filing status — as long as you paid more than half the cost of providing a home for your child. This transition instantly boosts your standard deduction amount and gives you the green light to pay fewer taxes.

Get help with child care expenses

When you’re a new parent, it’s easy to rack up child care bills. That’s why the government is stepping in to give you a hand with the Child and Dependent Care Credit. It’s a nonrefundable tax credit that can reduce your tax bill to $0. This can come in handy with the extra costs you take on as a parent.

To grab this credit, your child must be under the age of 12 and claimed as a dependent on your tax return. Based on your income, you can deduct a percentage of up to $3,000 in child care costs for one dependent or $6,000 in child care costs for two or more.

Qualify for up to $2,000 per child

Take advantage of the Child Tax Credit and receive up to $2,000 per qualifying child under age 17. There’s a phaseout for this credit that begins when your adjusted gross income exceeds $200,000 for single filers and $400,000 on a joint return.

The Child Tax Credit includes a refundable component, giving you access to up to $1,400 worth of money that can reduce your tax bill to zero and leave you with a refund. To qualify, the child must be related to you, have a social security number, and typically live with you for more than half the year.

Earned income tax credit

The Earned Income Tax Credit (EITC) is the hottest credit around, and it’s much easier to claim when you have a baby. It’s geared toward individuals with modest earnings. To qualify for this lucrative tax credit, your child must meet the qualifying child rules and you must meet the income requirements. You’ll receive a credit based on the number of qualifying children you have.

This refundable credit can mean extra cash in your wallet when you file your tax return. If your tax bill is only $1,000 and you receive a $3,000 EITC, you walk away with a $2,000 refund.

Congratulations!

Obviously, you didn’t have a child just to give you tax breaks. But every dollar you can save in taxes is one more dollar you can spend on raising your child, so be sure to take advantage of every tax deduction and credit you can find.

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