Raising a baby can put a dent in your budget. Fortunately, the IRS makes available numerous exemptions that could save you money on your taxes. Before you file your taxes for the first time as new parents, you should learn about these helpful tax credits that could lower your tax debt and could possibly lead to the IRS owing you a refund.
The Earned Income Tax Credit
The Earned Income Tax Credit, or EITC, is one of the most recognizable tax credits that the IRS makes available to parents. When you claim the EITC, you reduce your tax debt by hundreds if not thousands of dollars.To qualify for the EITC, the IRS requires that you meet certain household and income limits. For example, if you have one child, you must earn less than $43,941 to qualify for the full credit. The income limit cutoff is higher if you have two or more children. The IRS allows you to claim this credit regardless of when your child is born or adopted.
Dependency Exemption
The IRS also allows you to claim the dependency exemption if you have one or more children. To qualify for this exemption, the qualifying child must have been born or adopted during the tax year or during prior tax years.This exemption safeguards $4050 of your income from taxation. It also gives you a credit of $1012.50 if your income falls in the top 25 percent.
Child Tax Credit
The Child Tax Credit is another form of tax relief geared toward new parents. This credit is worth $1000 per eligible child. You can claim it regardless of when your child was born or adopted during the tax year.It also is worth its face value and applied dollar-for-dollar toward your tax burden. If you are a low-income taxpayer, you could receive a refund of this credit if it exceeds your IRS tax income liability. You are eligible for this credit if you file jointly and earn less than $110,000 per year or if you file single or head of household and earn less than $75,000 a year.
Child Care Credit
Parents who must pay for child care during the tax year so they can work outside of the home may recoup some of their expenses with the Child Care Credit. This credit lets you deduct $3000 for one child from your taxes if you make more than $15,000 but less than $43,000 per year, or up to $6000 for two or more children if your adjusted gross income falls within these dollar amounts.You could recoup between $600 to $1200 of your costs for one child or between $1200 to $2100 for two or more children. If you earn less than $15,000, you can claim up to 35 percent of your qualifying child care costs. If you make more than $43,000 per year, you can claim up to 20 percent of your costs depending on the AGI you claim on your returns.
Preparations for Claiming These Deductions
The IRS wants to make sure that parents receive their eligible deductions fairly and in a timely manner. You can speed up the process and make sure that your deductions are noted accurately by taking a few precautionary measures before you file your taxes.Some of the preparations you can take before filing include:
- Making sure your child or children have Social Security numbers
- Gathering receipts for child care costs
- Changing your W-4 at work to accurately reflect your family size and deductions
- Filing early to avoid making mistakes on your return
By providing these forms of proof to the IRS and by filing early, you ensure that all of your applicable exemptions are applied to your tax debt and that you receive any refund owed to you.
Your household budget is put to the test when you become a parent. You can ease your tax burden and possibly even receive a refund by making use of the IRS exemptions designed for new parents.
