The joy at the birth of a child may become even greater when the parents learn of the multiple tax benefits they may qualify for because of their newborn. A child born any time during the tax year is treated as having lived with you all year, so a child born shortly before midnight on New Year’s Eve 2012 comes with tax benefits you can claim on your 2012 income tax return.
A new child gives you an additional dependent tax exemption. In 2012, each exemption represents a $3,800 tax deduction. If you had twins, you would get two additional exemptions, for a $7,600 tax deduction. You will continue to get the deduction for your child each year that she remains your dependent.
Your new baby may bring you several other valuable tax benefits if you can qualify for them under Internal Revenue Service rules. You could get a credit of up to $3,000 as of 2012 for child care expenses that enable you to go to work, or can exclude from your income up to $3,000 in child care expenses paid by your employer. If you qualified for the child tax credit, you can get a credit of up to $1,000 per child, which you subtract dollar for dollar from your tax bill.
Whether you are a single parent or married couple who qualified for the earned income credit, your new child will usually bump up your credit amount. For example, depending on the amount of income your household earned, if you file jointly in 2012, your first child might increase your EIC payment by $2,694, from $475 to $3,169. If this were your second child, your EIC payment would rise by another $2,067. A third child would add another $655 for a maximum credit of $5,891 for joint filers with three or more children who met the low-income guidelines. The EIC is a refundable credit, meaning the IRS will refund it to you even if you owe no taxes.
Head of Household
If you are a single parent, your new baby may get you a lower tax rate by qualifying you for head of household status. One of the requirements for head of household status is that you have a dependent. As of 2012, for example, singles and marrieds filing separately jump up from the bottom tax bracket of 10 percent to the 15 percent bracket when taxable income exceeds $8,700, while a head of household doesn’t make this bracket jump until taxable income exceeds $12,400. The singles and marrieds filing separately jump to the 25 percent bracket when income exceeds $35,350, while the head of household doesn’t make this jump until taxable income tops $47,350. And as of 2012, a head of household got a standard deduction of $8,700 compared with $5,950 for those filing as single or married filing separately.
Social Security Number
To get these child-related benefits, your child must have a Social Security number. You should apply for one as soon as possible following the birth. It normally takes about two weeks to issue a number. If you don’t have a number by the tax filing due date, you can file Form 4868 for an automatic six-month extension. If your child was born and died in the same year and you couldn’t get a Social Security number before the child died, you attach copies of the birth certificate and death certificate or the hospital records to your return and enter “died” in Column 2 of line 6c on your Form 1040. The records must show the child was born alive. You cannot claim a stillborn baby.
- Urban Institute.org: Reference Manual for Child Tax Benefits 2011
- IRS: Publication 17, Chapter 2, Filing Status
- IRS: Publication 17, Chapter 3, Personal Exemptions and Dependents
- IRS: Child-Related Tax Benefits Comparison
- IRS: Preview of 2012 EIC Income Limits
- Saving to Invest.com: 2012 Federal Tax Brackets
Herb Kirchhoff has more than three decades of hands-on experience as an avid garden hobbyist and home handyman. Since retiring from the news business in 2008, Kirchhoff takes care of a 12-acre rural Michigan lakefront property and applies his experience to his vegetable and flower gardens and home repair and renovation projects.