How to Claim a Newborn on a Tax Return

The moment a baby is born, that child becomes a dependent on your taxes. It doesn’t matter if you give birth on Jan. 1 or Dec. 31 at 11:59 p.m. As long as your little one came into the world alive during the tax year, you’re welcome to any tax breaks that apply to your growing family in that tax year. But there are a few simple steps that parents must take before filing taxes with a newborn in the house.

Claiming a Newborn on Taxes

Life with a newborn baby can be overwhelming, so you can never get started on preparing for tax season too early. As soon as you know you’ll have a baby, start thinking about what you can deduct. One thing to consider will be your medical expenses. For the 2018 tax year, you can claim any out-of-pocket medical expenses that exceed 7.5 percent of your adjusted gross income. For the 2019 tax year, that threshold increases to 10 percent, but if you’ve never given birth, you may not realize just how much you’ll rack up in medical bills. Unless you have great health care coverage, you’ll probably be paying for at least a portion of your stay in the hospital, and the average cost for delivery and postpartum health care is more than $8,800. Tracking those expenses can make a big difference at tax time.

Before you can claim your baby on your taxes, you’ll need to have a Social Security card in his name. The easiest way to do this is to check the box on the application for a birth certificate you fill out at the hospital. However, if you miss this opportunity, you can go to your local Social Security office and fill out an application any time after your baby’s birth. You’ll be required to input this number when you claim your dependent on your tax return, so get the process rolling as soon as possible in case there are delays.

Researching Your Deductions

As you prepare for your baby’s arrival, spend some time looking into the tax credits available to you as a parent. If you’re looking for a newborn tax credit, you’ll find things have changed slightly under the Tax Cuts and Jobs Act. The personal exemption that once got each adult taxpayer a credit of $4,050 for herself, her spouse and each child has been wiped out. However, to compensate for this and other reductions, the new tax las has upped the standard deduction from $6,350 to $12,000 per taxpayer. The income bracket changes have given most taxpayers additional relief.

However, you’ll still get plenty of benefits from your new family addition. That includes a substantial increase in the child tax credit, which offers up to $2,000 for each child under the age of 17 that you’re claiming. This credit is also refundable, which means even if you don’t owe any taxes this year, you’ll benefit from it. There’s also the earned income tax credit, which issues a tax credit to low- and moderate-income individuals of up to $6,431 based on the number of children in the household.

If you pay for childcare for your new baby, you can also claim the child and dependent care credit, which offers credit for up to 20 to 30 percent of your costs up to $3,000 per child. You must have earned income to qualify and the caregiver cannot be your spouse or a dependent you claim on your tax return. You’ll also be required to provide a Social Security number for each caregiver.

Updating Your Withholdings

When people ask, “Can you claim a newborn on your taxes?” often that child is not born yet. But in the months leading up to and following a child’s birth there are things for a prospective parent to consider. One place to start is your company’s human resources office. The exemptions you claimed when you initially turned in your W-4 Form likely will be too much, resulting in a large refund at the end of the year. While a hefty check can be a relief, you likely want to have a larger paycheck every couple of weeks. Besides, when you turn your money over to the IRS, only for them to get back to you at the start of the next year, you’re essentially giving them an interest-free loan.

There’s a worksheet on the W-4 form that will help you calculate how many withholdings to claim. There’s also a worksheet for households with multiple earners. The W-4 form will help adjust for the extra you’ll be able to claim in tax credits when you file. This means you could see a bigger paycheck but a smaller refund. It’s important to note that you are not limited to the number of dependents you actually have when you fill out your withholdings. If you claim more, less money will be withheld, but if you claim too many dependents, you could find that you owe Uncle Sam in mid-April.

Consider Tax-Exempt Savings Plans

Although it might not help you if you’re mostly childfree throughout the tax year, there are some tax-free savings plans that can give you a substantial break in the years following your baby’s birth. One that is specific to parents is a dependent care flexible spending account, which lets parents put pre-tax dollars into an account for spending on eligible dependent care, including afterschool programs, nannies, nursery school and daycare. You’ll need a detailed receipt to spend the money on those items, but they can give you considerable savings during a child’s younger years.

Another tax-free option is a flexible spending account, which lets you set money aside for your family’s out-of-pocket health care costs. Need glasses or contact lenses? An FSA can help. Best of all, your child doesn’t have to even be conceived yet to sign up for such a plan. You can set it up for yourself and your spouse and start putting money in each month. Pre-tax savings plans are now offered through many employers, but you’ll be limited to an enrollment period at the end of each year, so it’s important to plan ahead.

Start Saving for College

You probably aren’t as concerned about it now, but it’s important to start saving for your child’s future college costs as early as possible. If your child entered college today, the cost would be at least $9,970 per year, which is nearly $40,000 if she graduates within four years. You could put money in a bank account, but the interest you’ll earn will be minimal, plus you won’t get any tax benefits from doing so.

A 529 savings plan lets you put money into a savings account specifically for a college education. If you start putting money in at the same time you begin claiming a child on taxes, you can have the money you need once it’s time. There are two types of 529 plans, and whether you can get one, the other or both depends on which state you’re in.

  • A prepaid tuition plan lets you purchase credits at a specific college or university, usually limited to state universities that are in the state where the parent lives when the plan starts. Prepaid plans aren’t guaranteed and if the student decides to go to a different university, the payout may be reduced.
  • Education savings plans work as an investment account, letting you put money in for use at whatever college your little one eventually chooses. Withdrawals can be used at any university, including some that aren’t even in the U.S. Funds from an education savings plan can be used to pay up to $10,000 each year per beneficiary for tuition.

The best thing about a 529 plan is that you may get tax benefits from investing in one. These vary from one state to another, but they include being able to deduct contributions on your state income tax. The best news, though, is that when you withdraw the money to pay for eligible college expenses, you won’t be required to pay federal income tax on the money. You will have to pay taxes and a 10 percent penalty if you withdraw the funds and don’t spend them on college.

Navigating Dependent Qualifications

In addition to being born alive during the current tax year, the newborn must meet the IRS test to qualify as a dependent. These rules include:

  • The child must have lived with you for at least half the year.
  • The child must be your son or daughter or be a stepchild, foster child, brother, sister or descendant of any of those.
  • The child must be 18 or younger if not in college.
  • The child must be younger than you.

If you or your spouse gave birth to the child, he’ll easily satisfy all these requirements. However, if the newborn is your grandchild but living with you, you may find things are a little more complicated. You can claim descendants of your children on your taxes if they qualify, but you can’t claim the child if he qualifies as a dependent of another person. In other words, if the child’s parent and the child live with you, the child’s parent will likely claim the child unless you’re supporting both of them.

Special Rules for Separate Parents

Things can get a little tricky if your circumstances aren’t cookie-cutter. In other words, if your child’s other parent has joint custody and wants to claim him on his taxes, you’ll need to know the IRS rules regarding those things. If parents aren’t married filing jointly, only one parent gets to claim a child on her tax return. Generally speaking, the rule is that the parent with whom the child spent the most nights throughout the tax year is the one considered the custodial parent and therefore the one who should claim the deduction. Even in a joint custody situation, one parent generally has the child more than half the time, so that is the primary parent for tax purposes.

However, the IRS acknowledges there may be special circumstances, so it gives parents a little wiggle room. The noncustodial parent can claim a tax deduction for a child if the custodial parent signs Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent. This form releases a custodial parent’s rights to claim the child for the current tax year so that the noncustodial parent can claim her. On the form, the custodial parent can also stipulate which future years she wants to release claiming the child to the noncustodial parent, as well as revoke a past release of claim. The noncustodial parent must attach a copy of Form 8332 when filing taxes to avoid confusion. It’s important to note, though, that this form does not apply to the earned income tax credit, which requires the child to live with the parent for at least half the year.

Tip

  • If you have not received your newborn’s Social Security number by the due date to file your tax return, you may file for an extension and submit your taxes once you have received the number.
  • Since a new child will reduce your taxes, your tax withholding can be reduced as well. You can reduce your tax withholding by filing a new Form W-4 with your employer, claiming your new child as an additional allowance.
  • If you have a child, you should not use Form 1040-EZ no matter how simple your taxes are since it does not allow you to take the child tax credit. Accordingly, to decide whether to file your taxes using Form 1040 or Form 1040-A, you must determine what deductions you may claim as only certain deductions are allowed on Form 1040-A. Form 1040 is the basic tax form and when in doubt, this is probably the best form to use. The IRS website has a series of questions that can assist in this determination.

Warning

  • If you do not report each child’s Social Security number on your tax return, you may be fined, and it could delay the processing of your tax return and ultimately, your refund if you are owed one. The IRS may also disallow the exemption for that child.

About the Author

Stephanie Faris is a novelist and finance writer whose work has appeared on The Motley Fool, MoneyGeek, and Ecommerce Insiders.


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