There are many joys of becoming a parent, and even Uncle Sam provides motivation to build a family with tax credits.
With Father’s Day around the corner, here’s a look at some of the tax breaks for new parents:
Make sure that your new child has a Social Security number. These days, the number is normally issued at birth, but if your child did not obtain one, file Form SS-5 Application for a Social Security Card. You cannot claim the child as a dependent or take advantage of the other tax benefits unless you can provide the child’s Social Security number on the tax return.
When filling in the dependent information on Form 1040, indicate “12” in the column asking for number of months lived in the home. It doesn’t matter if the child was born on Dec. 31, you may indicate 12 unless the child actually lived elsewhere during part of the year. If that is the case, indicate the actual number of months spent at home in the column.
Parents are entitled to take the child credit and the additional child tax credit of up to $1,000 off their tax liability. See IRS Publication 972 for worksheets to calculate and claim the credit, or use the IRS step-by-step qualifier to determine eligibility: Am-I-Eligible-for-the-Child-Tax-Credit?
If you are considered low income, you may be eligible to claim a larger refund by taking advantage of the Earned Income Tax Credit (EITC). Read up on the qualifications at the IRS EITC-Home-Page and use the IRS Publication 503 for more information on the topic.
There are also college savings plans that provide tax incentives for new parents, including 529 plans and Coverdell savings accounts.
And if your new arrival is adopted, there’s also the adoption credit which can be as high as $13,000.
Avoid a penalty on your 2014 income tax return by providing health insurance for your new arrival. The Affordable Care Act has created insurance marketplaces for those that don't have employer-sponsored coverage to help reduce costs. Getting the baby insurance is deductible for parents if they itemize deductions or are self-employed showing a profit.
Vanessa Borges, expert tax preparation supervisor for the Tax Defense Network said in a statement, “First, the majority of kids from low or middle-income families will continue to qualify for free or low-cost health care. These programs have been in effect for years and will continue to provide benefits. Second, through Obamacare, many privately run health insurance companies will offer similar benefits for parents and kids. You can find out if your family is eligible for a plan by visiting the virtual health insurance marketplace at HealthCare.gov.”