If you welcomed or adopted your first child in 2024, you might find that filing your taxes isn’t currently at the forefront of your mind. However, it is essential to note that you will still need to prepare a return in 2025, regardless of how exhausted you may feel in the weeks and months ahead. The arrival of a new child can indeed complicate your tax situation, yet it also opens avenues for numerous tax credits and deductions that you may be eligible for. Here’s what new parents should be aware of for the upcoming tax season and beyond:
Securing a Social Security Number for Your Child
One of the first steps you should take is to ensure your child has a Social Security number. You cannot claim your child as a dependent on your tax return without this number. Many parents apply for a Social Security number for their newborn right at the hospital, but if you haven’t done so, it’s advisable to submit an application as soon as possible. Keep in mind that the process might take some time as the Social Security Administration needs to verify your child’s birth certificate and identity. You can request a six-month tax extension while waiting for the number to be processed.
Understanding Head of Household Status
For single parents, filing taxes as the head of the household can significantly benefit your financial return. This status allows you to claim a $21,900 standard deduction for the 2024 tax year, compared to the $14,600 standard deduction available to single filers without dependents. Additionally, there are favorable tax brackets associated with head of household status. However, it’s crucial to remember that the IRS does not automatically recognize you as head of household; you must manually indicate this status on your tax return or have your tax preparer do it for you.
Financial Impact of a New Child on Your Taxes
Many people assume that having a child will automatically lead to a lower tax bill or a larger refund, but this is not always the case. The extent to which your tax situation improves largely depends on your income level. Generally, families with lower incomes qualify for more generous tax credits and deductions once they have a child.
Adoption Tax Credit
If you adopted a child in 2024, you could qualify for a tax credit of up to $16,810 for eligible adoption-related expenses, including attorney fees, agency fees, and travel costs associated with the adoption process. While you can claim this credit over multiple years, you cannot exceed the $16,810 limit for one adoption. To be eligible for the full credit, your modified adjusted gross income must be $252,150 or lower. If your income exceeds $292,150, you do not qualify for the credit. Note that this credit is non-refundable, meaning if you don’t owe any taxes, you won’t receive a payment, but you can carry the credit forward to offset future tax liabilities.
Child Tax Credit Overview
New parents may also be eligible for the Child Tax Credit if their adjusted gross income is below $200,000 for individuals or $400,000 for married couples filing jointly. This credit can considerably reduce tax bills and enhance refunds for qualifying families.
Child and Dependent Care Credit
If you are employed and incur childcare expenses, you may qualify for the Child and Dependent Care Credit. To be eligible, you must have earned income and work-related childcare charges. The credit supports up to $3,000 for one child, or $6,000 for two or more children, with the actual credit amount depending on your income. For more details, refer to IRS Publication 503
.
Earned Income Tax Credit Eligibilities
Welcoming a child into your life could also make you eligible for the Earned Income Tax Credit (EITC). If you have one child and your adjusted gross income was $49,084 while filing individually or $56,004 jointly, you may claim up to $4,213 in a refundable tax credit.
Adjusting Your W-4 Withholding Finally, it’s important to revisit your W-4 form with your employer to adjust your withholding to reflect your new dependent. While this may lead to a smaller tax refund next year, it will increase your take-home pay immediately, as less tax will be withheld from your paychecks. Navigating the tax landscape as a new parent may seem daunting, but understanding these key points can help you maximize your benefits and simplify your tax preparation process.
