This is a guest post. Alycia Coloma is a mother to four beautiful girls and loves to craft DIY projects in her spare time. She enjoys finding new ways to work with tight budgets and spreading her knowledge to parents everywhere. Alycia is a staunch advocate of continuing education and believes that an insatiable hunger for knowledge is the key to better finances, a warm family, and a fulfilling life as a whole. She’s also a kitchen connoisseur on the side, and has been known to whip up some mean empanadas.
First-time parenthood comes with a lot of big changes. New schedules, new doctors, and new routines all come with the birth of your first child. It’s a very exciting time!
Along with all of these changes come adjustments to your taxes, too. If you’re living in the USA, a new or expectant parent and want to stay on top of your new tax needs, read on for some key tax tips!
Get Your Child an SSN
If you’re new to parenthood, chances are you’ve never had to apply for a Social Security Number before. Most people are simply told that SSNs at a certain age and stick with them for life. But as soon as you have a child, you’ll need to do get your child an SSN!
It’s not that complicated to get your child a Social Security Number. If you gave birth in a hospital, there is a box to check on your child’s birth registration form that requests an SSN. You’ll just need to provide you and your partner’s Social Security Numbers, if applicable.
If you gave birth outside of a hospital, you’ll need to go in person to your local Social Security Administration office to file for one. You’ll be required to complete an Application for Social Security Number, which can be downloaded from the Social Security website ahead of time. You’ll also need to provide a driver’s license or passport and at least two documents that show your baby’s name, birthday, and citizenship status, such as a birth certificate, hospital birth record, or medical record.
Review Relevant Tax Credits
Your first child opens the door to lots of new savings come tax season. Most of these savings come in the form of tax credits. These are credits that directly lower the cost of your tax liability. If you claim these credits, you’ll be able to subtract their value from the amount of tax that you owe.
Earned Income Tax Credit
The Earned Income Tax Credit is a tax credit that is available to low to moderate income workers and families. Anyone who falls beneath a certain income threshold is eligible for the EITC.
While childless individuals and parents alike are eligible for the Earned Income Tax Credit, the upper income threshold for the EITC is increased with every child who is claimed. That means, though you may have made too much money to claim the EITC before, the birth of your child may make you eligible now. For instance, an individual filing single with no children must make below $15,570 to qualify for the EITC. However, an individual filing single with one child can make up to $41,094 and still claim the EITC.
Child Tax Credit
This is a credit that is available to anyone who claims a child on their tax refund. This credit can save you up to $2,000 per child.
The Child Tax Credit is what’s known as a refundable credit. That means that this credit can be claimed even if it is greater than your total tax liability, and the balance will be given to you in the form of a refund. For instance, if your tax liability is $800 and you claim the full $2,000 child tax credit, the IRS will give you the remaining $1,200.
Child and Dependent Care Credit
If you pay for child care, you may be eligible for the Child and Dependent Care Credit. This credit allows you to write off the cost of daycare, nanny, or professional caretaking services. To claim it, you’ll need to complete IRS Form 2441.
Review Your Withholdings
Now that you have a dependent to claim on your taxes, you’ll likely get bumped into a lower tax bracket. That may mean that the tax money that your company withholds from your paycheck may now be too much. Review your W-2 withholdings to ensure that you’re not overpaying throughout the year.
While you can only do so much to prepare for all the new challenges you’ll face with your bundle of joy, these tax tips will get you on the right track for successful filing.