By Mario McKellop
The birth of a child brings a number of changes in the life of a couple. One of the many significant life changes new parents experience is the impact having a child has on their tax status. Here are a few tips that will make that transition process easier.
Get Your Child A Social Security Card
Right off the bat, one of the first tax-related tasks new parents need to complete is ensuring that their newborn is issued a Social Security number. Typically, new parents can get the paperwork started at the hospital right after the birth. This is important because without is a Social Security number, you can’t claim your child as a dependent. If you file a return for a dependent that has not been assigned a Social Security number, you can be subject to a fine and a delayed tax refund.
Claim The Dependent Exemption
As of 2016, you and your spouse can exempt $4,050 of your adjusted gross income (AGI) for every qualified child you claim on your tax return as a dependent. It should be noted that you claim the full value of the dependent exemption for the first tax year your child was born or adopted.
Take Advantage Of The Child And Dependent Care Tax Credit
One of the major expenses new parents have to cope with is paying for child care. Thankfully, the federal government’s Dependent Care Tax Credit makes dealing with these new costs a bit more manageable. Depending on your income level, you can claim a tax credit worth 35 percent of your child care expenses up to $3,000, or up to $6,000 if you can claim more than one dependent. However, to claim to this tax credit, you’ll need to have the tax ID or Social Security number of your child care provider.
Change Your W-4
Because of the new tax credits and deductions you’ll be able to claim on your tax returns, you don’d need your employer to withhold as much money from your paycheck. Once you take your new bundle of joy home, contact your company’s HR department to make the change to your W-4 Form and you’ll soon see a boost in your regular take home pay.
Use the Earned Income Tax Credit
The government’s Earned Income Tax Credit (EITC) provides some financial relief for low-income families. While married couples without children can claim an EITC of $506 if they make less than $14,880 in AGI for single filers or $20,430 for joint filers, the threshold rises to $39, 296 for single filers and $44,864 for joint filers for new parents and the claimable EITC jumps to $3,373.