I’m a Tax Expert: 3 Things You Need To Know About Filing as a First-Time Parent
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Aja McClanahan
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Cory Dudak
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Filing taxes for the first time as a parent can be overwhelming. The good news is, once you file your income tax return claiming your child as a dependent, you’ll get the hang of it pretty quickly.
Check out what these tax experts recommend if you’re filing for the first time as a parent.
1. Familiarize Yourself with Child-Related Tax Benefits
You should know that there are several benefits that could help you optimize your tax filing and save a substantial amount of money as a parent:
Child Tax Credit (CTC) and Additional Child Tax Credit (ACTC)
Rob Burnette is an investment advisor representative and professional tax preparer at Outlook Financial Center in Troy, Ohio. He notes that” Dependent children bring several additional tax reporting and tax credit opportunities. The Child Tax Credit and Additional Child Tax Credit may be worth up to $2,000 per child aged 16 and younger (the Other Dependent Credit of $500 applies to age 17 and older).
Qualifying taxpayers with dependent children must meet specific eligibility criteria, including age, residency and relationship requirements. Though income thresholds and phase-out limits exist for these tax benefits, most Americans can use these credits to reduce or totally eliminate their tax liability.
Earned Income Tax Credit (EITC) for parents
The Earned Income Tax Credit (EITC) is a refundable tax credit for working parents that reduces the amount of taxes owed and results in a refund if the credit exceeds your tax liability. To qualify for the EITC, you must have earned income through employment or self-employment and meet certain income thresholds based on your filing status and the number of qualifying children.
Child and dependent care tax credit
Peggy James is a CPA and expert reviewer for Annuity.org. She explains, “If you pay for child or dependent care so you can work or look for work, you may be eligible for the child and dependent care tax credit. The credit is available on the first $3,000 of childcare expenses per child, and the amount of the credit depends on your income level, ranging from 35% for lower-income taxpayers to a maximum of 20% of childcare expenses.” To claim this credit, you must have sufficient documentation, as described on the IRS website.
Education-Related Tax Benefits
Though not likely applicable the first time you file as a new parent, you should know that the U.S. tax code provides educated-related tax benefits for qualifying tax filers. There are also deductions for qualifying tuition and education-related expenses, such as books and classroom supplies, and tax-deferred education accounts like 529 Plans, which is useful knowledge for tax planning purposes.
2. Have Proper Documentation
Andrew Latham is a Certified Financial Planner and director of content at SuperMoney. He says it’s important to have the proper documentation in place to obtain all of the tax benefits of being a parent–especially a social security number (SSN). He says, “When claiming a dependent on your tax return, such as your baby, it’s crucial to include their Social Security Number (SSN). If your baby doesn’t yet have an SSN, apply by submitting Form SS5, Application for a Social Security Card, to the Social Security Administration (SSA).”
He also gives tips for parents in the process of adopting a child without an SSN, “You can apply for an Adoption Taxpayer Identification Number (ATIN) using Form W-7A with the IRS. The ATIN serves as a temporary identification number until the adoption is finalized.”
3. Update Your Financial Professional on All Major Life Events
When it’s the birth, adoption, divorce or even death of anyone in your family, it’s important to inform your tax professional of these changes well before tax filing season, if possible.
Joseph Carpenito is a financial advisor and Enrolled Agent (EA). He says, ” I can’t overstate the amount of times that parents miss out on their respective tax credits simply because they didn’t let their tax professional know they had a child born in that tax year. This goes for not only the first-born child but for any child born in a tax year. “
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