If you recently had a child by birth or adoption, you might need to update your information when doing taxes. Having a new child can complicate your tax filing, but you don’t have a choice, do you?
Claiming a child as a dependent does not guarantee a lower tax bill and is eligible for a larger refund. The amount of tax refund and tax bill still depends on your income. Generally, low-income taxpayers are eligible for generous tax credits and deductions for having or adopting a child.
As the tax season just kicked off, gathering information is a good idea to avoid scrambling and cramming on April 18 deadline.
Get a Social Security number for your child
The first thing a parent should do is to get their child a Social Security Number. Parents should immediately apply for a Social Security number. It is needed to claim the child as a dependent on their tax return, said John Karls, a certified public accountant and the director of the High-Net-Worth and Family Office Practices, a national tax advisory firm.
Karls added applying for a Social Security number may take a while since the Social Security Administration needs to verify the child’s identity and other administrative processes. He advised filing for a tax extension as soon as possible. In case you have not obtained the Social Security number by October 16, the deadline for a tax extension, you can instead file a return without claiming the child as a dependent. You can file an amended return later; however, the process can be strenuous, Yahoo News reported.
New parents should update their W-4 form and head of household status. They should get a Social Security number for their child. (Photo: Mother to baby)
Update your head of household status
If you are a single parent, you should update your status as the head of household so you can claim a $19,400 standard deduction. Single filers without dependents can only claim up to a $12,950 standard deduction. The head of household status will be more likely to get more favorable tax brackets.
Update your W-4 Form
USA Today advised that new parents must fill out a new W-4 form if they work for an employer. The form will reflect your number of dependents which will lower the refund, you can get next year. However, you can get higher paychecks since less money will be withheld.
Also Read: IRS W4 Form 101: How many allowances should you claim?
Adoption tax credit
Taxpayers who adopt a child in 2022 can qualify for up to $14,890 credit per child for the incurred expenses during the process. The credit includes adoption-related attorney fees, traveling expenses, and more.
Qualified taxpayers should have a modified adjusted gross income of below $223,410.
Child Tax Credit Qualifications
If you become a parent in 2022 and have an adjusted gross income of less than $200,000 or $400,000 for jointly filing with your spouse, you may qualify for the Child Tax Credit. You can get $2,000 for children below five years old or $3,000 for children aged six to 17
Also Read: Child Tax Credit 2023 Will Revert Back to Pre-Pandemic Levels
Dependent Care Tax Credit
This credit applies to those employed taxpayers who pay for childcare services. . If you have an adjusted gross income of $43,000 or less, you are eligible to get a tax credit of up $3,000 for child care expenses.
Eligibility Guidelines for EITC Qualifications
New parents are automatically eligible for the Earned Income Tax Credit. If you have one dependent, you can get up to $3,733 in a refundable tax credit – if you have an adjusted gross income of $43,492 or $49,622 if you jointly file with your spouse.
Read More: 2023 US Tax Season and Taxation: Understanding State vs Federal Income Taxes
