Welcoming a new baby into your family is a joyous occasion, but it also comes with a host of new responsibilities, including understanding how this life change impacts your taxes. This article will provide you with an in-depth understanding of what you need to know about claiming your child on your taxes in 2023, complete with real-life examples, practical tips, and common mistakes to avoid.
First Steps and Dependent Requirements When Claiming a Newborn
When it comes to income tax, there are a few important steps to take to ensure you’re eligible to claim your newborn.
Apply for a Social Security Number
Firstly, apply for your baby’s Social Security number. This number is crucial before proceeding with any other steps. If you’re giving birth at a conventional hospital, hospital staff often prompt you to do this. You can also visit or contact the Social Security Administration to fill out Form SS5, the Application for a Social Security Card. Once you have applied, the number could take about two weeks to arrive.
Determine Who Can Claim the Baby
Next, determine if your newborn is “yours to claim” on taxes. There are several tests to determine if your child is your tax dependent. A qualifying child must meet specific tests: relationship, age, support, abode, U.S. citizenship, and the joint return test. For newborns, you don’t have to worry about the age test (where your dependents must be younger than you and under 24 to claim). In addition, your newborn isn’t married, so there’s no joint return to consider. If your baby was born in the U.S., they are a U.S. citizen or resident.
Possible Changes in Filing Status
If you are single, had a baby, and now support that child in the home where you live, you’re likely eligible to use the Head of Household (HOH) filing status. This filing status gives you a larger standard deduction and more favorable tax brackets. Thanks to your new bundle of joy, you could pay less federal tax as HOH than you would as Single for the same income.
Newborns and Tax Breaks
Having a baby is often associated with being eligible for tax breaks and tax benefits. What you might not know is that tax rules change frequently, so the types of tax breaks and the amounts can change as well.
Child Tax Credit
Babies are oh-so-cute, but they can be expensive. That said, you’ll want to know about the Child Tax Credit, which could lower your tax bill up to $2,000 per qualifying child (if your income is not too high). What’s more, this credit is partially refundable. So, you may receive a refund even if you don’t owe any taxes, and you may even get money back as a refund. Paying less in income tax could mean higher quality diapers or nicer toys for your little one!
Child Care Credit
If you paid a qualifying individual or organization to care for your child while you work, you might be able to claim the Child and Dependent Care Credit on your federal tax return. It’s based on your amount of earned income and can be up to 35% of your qualifying childcare expenses, up to a max expense of $3,000 for one child, and up to a max expense of $6,000 for two or more children.
Medical Expense Deduction
Hospital fees and other medical expenses can add up when you give birth to a baby. For this reason, consider taking advantage of the medical expense deduction if your expenses exceed 7.5% of your AGI. You might be surprised to find that the cost of breast pumps and lactation supplies also count as medical expenses. These expenses may help you get over the hump to take the deduction.
Navigating taxes as a new parent can be overwhelming, but understanding how claiming your child on taxes works can lead to significant savings. By meeting eligibility requirements and taking advantage of available tax benefits, you may be able to reduce your tax burden while still providing support for your growing family in 2023.
When can I start claiming my new baby on my taxes?
You can start claiming your new baby as a dependent on your tax return once they have been issued a social security number. This usually happens within the first few months after their birth.
How much is the child tax credit for 2023?
The child tax credit has increased to $3,600 per qualifying child under age six and $3,000 per qualifying child between ages six and seventeen. However, this amount may be reduced or phased out depending on your income level.
Can I claim both the Child Tax Credit and the Dependent Care Tax Credit for my newborn?
Yes, you can potentially claim both credits if you qualify. The Child Tax Credit provides a credit based on the number of eligible children in your household while the Dependent Care Tax Credit provides a credit up to certain limits for childcare expenses incurred while you work or look for work.