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If you recently had a baby, you already know how life-changing new parenthood can be. But, having a baby doesn't just change your life—it also changes the way you file your taxes. From new deductions to potential tax credits and new record-keeping requirements, tax changes for new parents can be significant (and a lot for sleep-deprived brains to process). Here's what you need to know.
Does a New Baby Mean a New Exemption?
Prior to 2017, the birth of a child heralded the birth of a brand new tax deduction. However, the Tax Cuts and Jobs Act of 2017 eliminated personal exemptions through 2025, replacing them with larger standard deductions instead. That means adding a child to your household doesn't add a standalone tax deduction, though your new bundle of joy may bring about other tax benefits.
Will Your Filing Status Change?
If you file taxes as a single person, adding a qualifying dependent child may allow you to change your tax filing status to head of household and claim a higher standard deduction. Here's how standard deductions stack up for 2023 and 2024.
| 2023 and 2024 Standard Deductions | ||
|---|---|---|
| Filing status | 2023 | 2024 |
| Single and married filing separately | $13,850 | $14,600 |
| Head of household | $20,800 | $21,900 |
| Married filing jointly | $27,700 | $29,200 |
Source: IRS
As head of household, you also get to use more favorable tax brackets, which could save you even more on taxes.
Head of household status requires that you claim at least one qualifying dependent. If you are not married to your child's other parent, only one of you may claim the child on your tax return. The IRS has tiebreaker rules to help determine which parent claims a dependent child, if you need help deciding which parent will claim the dependent.
If you're married, your filing status doesn't change with the birth or adoption of a child.
Can You Claim Tax Credits?
Having a dependent child may make you eligible for a variety of tax credits. Unlike tax deductions or exemptions, tax credits reduce your tax bill dollar for dollar, which makes them especially valuable. Tax credits may be refundable or nonrefundable depending on whether you can receive part of your credit as a tax refund when your credit is larger than your tax bill.
Here are a few tax credits that may apply now that you're parents.
Child Tax Credit
The child tax credit provides up to $2,000 in federal tax credits for each qualifying child you claim on your tax return. To qualify for the full $2,000 credit, your annual income must be $200,000 or less ($400,000 if married filing jointly). Up to $1,600 of your credit may be refundable, meaning that you may receive up to $1,600 of it back as a refund if your tax credit is greater than the total tax you owe. To qualify, your child must have a Social Security number, be under age 17 and be claimed as a dependent on your tax return.
Adoption Credit
A federal adoption tax credit of up to $15,950 per child in 2023 can help new parents defray the considerable costs of adopting a child. The credit is for qualified adoption expenses, including adoption fees, court and attorney fees, traveling expenses and other direct expenses. Additionally, income you receive for employer-provided adoption assistance may be excluded (or partially excluded) from your taxable income.
Child and Dependent Care Credit
The child and dependent care credit provides nonrefundable tax credits for care costs you've incurred so you can work, look for work or attend school. In 2023, you may claim 20% to 30% of up to $3,000 in qualifying expenses for one dependent or up to $6,000 for two or more dependents as a nonrefundable tax credit.
Earned Income Tax Credit
Increasing your household size may help you qualify for the earned income tax credit (EITC)—or increase the amount of credit you can claim. The EITC is a refundable tax credit designed to provide low- to moderate-income taxpayers with a bit of relief. For reference, here are the EITC income limits and maximum credits for the 2023 tax year, to see whether or not you may qualify.
| 2023 Earned Income Tax Credit | |||
|---|---|---|---|
| Number of Children Claimed | Single, Head of Household or Widowed | Married Filing Jointly | Maximum Credit |
| Zero | $17,640 | $24,210 | $600 |
| 1 | $46,560 | $53,120 | $3,995 |
| 2 | $52,918 | $59,478 | $6,604 |
| 3 or more | $56,838 | $63,398 | $7,430 |
Source: IRS
4 Things to Do to File Your Taxes as a New Parent
In addition to sorting through eligibility requirements for the tax credits listed above, you'll want to nail down these four items in preparation for your first tax season as a family.
1. Get a Social Security Number
The easiest way to get a Social Security number for your baby is to apply when you submit birth certificate paperwork, according to the Social Security Administration. You'll need a Social Security number to claim your child as a dependent on your tax return, to claim the child tax credit or EITC, and eventually to open bank accounts in your child's name.
Didn't get a Social Security number when your baby was born? You can apply online at SocialSecurity.gov.
2. Consider Tax-Advantaged Savings
Special savings accounts aren't mandatory, but it's never too early to start saving wisely. If you're receiving cash gifts you'd like to put away for your child's future, consider opening a 529 education account to save for college. With a 529, you won't pay taxes on interest and gains as the account grows. You may also want to look into employer-based childcare subsidies or a flexible spending account (FSA) that lets you set aside pretax money for child care or out-of-pocket health care expenses.
3. Document Your Deductible Expenses
If you do open an FSA through your employer, be prepared to document your qualifying expenses throughout the year. You'll want to do this if you plan to claim the child and dependent care credit as well.
Also, save receipts for any out-of-pocket medical expenses you've incurred for prenatal care, hospital care and postnatal or pediatric care. If your costs exceed 7.5% of your adjusted gross income and you itemize your deductions, you may be able to deduct some of your medical expenses on your tax return.
4. Adjust Your Withholding
Adding a new person to your tax-paying household can definitely change your taxes. Consider adjusting your withholding when your baby is born, so the amount you're setting aside reflects your new tax reality. You may also want to re-evaluate after you've completed your tax return and have a clearer understanding of how much you need to withhold each paycheck to meet your tax liability for the year.
The Bottom Line
Adjusting to life with a new baby is work enough: New parents don't need an avalanche of tax-related tasks to give their lives meaning and purpose. By focusing on essentials like getting a Social Security number and checking eligibility for the child tax credit, you can help ensure that you're not missing out on key tax benefits, this year and down the road.
If you think additional help might be fruitful in this year's tax planning, consider working with a tax advisor. They can help you identify all of your available tax credits and deductions, and help you with future tax planning.