New Baby

The Basics:

  • Qualify for credits including the Child Care Credit, the Child Tax Credit and the Earned Income Credit.
  • If you’re a single parent paying more than half the household costs and your child lives with you more than half the year, claim Head of Household to qualify for a higher standard deduction than when filing as Single. You’ll also be eligible to use a more favorable tax table or rate schedule.
  • Apply for a social security card immediately after your child’s birth to receive tax benefits.

In most situations, you’ll claim the exemption for a newborn child because the child is your qualifying child. But in some situations, the child will be claimed as a qualifying relative. See Publication 501 for the rules relating to qualifying relatives.

You Can Claim a Dependent

In either situation, 3 conditions must be satisfied:

  • You are not a dependent of another person.
  • If the child files a joint return, the return is filed only to claim a refund and neither the child nor the child’s spouse would have a tax liability if they file separate returns.
  • The child is a U.S. citizen, resident, or national, or a resident of Canada or Mexico for part of the year.

A child is your qualifying child if all the following additional conditions are satisfied:

  • The child is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of them.
  • The child is younger than age 19, a full-time student younger than 24 or a disabled child. If the child is not disabled, the child must be younger than you (and your spouse if you are Married Filing Jointly).
  • The child did not provide more than half of his or her own support.
  • The child must live with you more than half of the year. A newborn child is considered to have lived with you for the entire year.

If the parents of a child can claim the child as a qualifying child and neither does so, no other individual can claim the child as a qualifying child unless that individual’s AGI is higher than the highest AGI of any parent of the child.

You Could Qualify for Several Credits

You may qualify for the Child Tax Credit, Earned Income Credit (EIC) and Child Care Credit.

Child Tax Credit — You may be able to get a credit of up to $1,000 per child. An eligible child must be your dependent, younger than 17 and must be a U.S. citizen, U.S. national, or a resident alien. This credit is available regardless of your filing status. However, your credit is reduced if your modified adjusted gross income is:

  • $110,000 or more if Married Filing Jointly.
  • $75,000 if Single, Head of Household or Qualifying Widow(er).
  • $55,000 if Married Filing Separately.

If your credit is limited by your tax, you may be eligible for the additional Child Tax Credit even if your tax is zero. To qualify, your earned income must be more than $3,000. You also may be eligible if you have at least 3 qualifying children and the Social Security and Medicare tax you paid is more than your EIC.

EIC — The EIC is a refundable credit available to low-income workers. The amount of the credit varies depending on your income level and the number of qualifying children you have. You may qualify if:

  • You have 1 qualifying child and your 2015 earned income and adjusted gross income are less than $39,131 ($44,651 if Married Filing Jointly).
  • You have 2 qualifying children and your 2015 earned income and AGI are less than $44,454 ($49,974 if Married Filing Jointly).
  • You have 3 or more qualifying children and your 2015 earned income and AGI are less than $47,747 ($53,267 if Married Filing Jointly).

Other conditions apply:

  • You can’t claim the credit if you have more than $3,400 of investment income (for 2015).
  • You can’t claim the credit if you are Married Filing Separately.
  • You can claim the credit only if you have a valid social security number.
  • You can’t claim the credit if you are the qualifying child of another person.
  • If your child is a qualifying child of another person, special rules apply to determine which person can claim the credit. A special rule also applies if that other person is your divorced or separated spouse. See the Form 1040 instructions.

Child Care Credit — You may be entitled to a credit for paying someone to look after your child while you worked or looked for work. Expenses must be paid for a child younger than 13. If the child reached age 13 during the year, only the expenses paid before the child reached age 13 qualify. The credit is equal to 20% to 35% of your qualifying expenses, depending on your adjusted gross income. You can include up to $3,000 of expenses if you have 1 qualifying child and up to $6,000 if you have more than 1 qualifying child).

To be eligible, you (and your spouse, if married) must maintain a home that you live in with your child. Generally, you (and your spouse, if you are filing jointly) must have some type of earned income during the year, such as wages or self-employment income. Plus, if filing jointly, you may still qualify for the credit if one spouse is disabled or is a full-time student.

Your Filing Status

If you’re married and live with your spouse, your filing status does not change if you’re a parent. However, if you’re not married (your marital status on the last day of the year determines your status for the entire year), you may be able to file as Head of Household and qualify for a higher standard deduction than when filing as Single. You’ll also be eligible to use a more favorable tax table or rate schedule. To file as Head of Household:

  • Your child must be a qualifying child (see “You Can Claim a Dependent,” above) even if you can’t claim an exemption for the child.
  • You must have paid more than half the cost of maintaining a home for yourself and your child.
  • Your child must have lived with you for more than half the year. A child born in 2015 is considered to have lived with you the entire year 2015.

Social Security Card for Newborn

Remember to apply for a social security card promptly after your child’s birth. The social security number is necessary to get some of the tax breaks to which you are entitled. If nothing else, not having it may cause delays in the processing of your return.

Gifts for Your Child

Generally, gifts to your child do not count as taxable income, and you won’t have to file a tax return on his or her behalf if your child’s income is $1,050 or less. However, any earnings returned on gifts/investments given to your child are usually taxable (although it may be at the child’s rate, which is usually lower than yours). If your child is unmarried and has more than $2,100 of investment income (for 2015), he or she is subject to the so-called “kiddie tax,” which causes some of the earnings to be taxed at your (the parent’s) tax rate, if any of the following apply:

  • the child was younger than 18 at the end of the year.
  • the child was 18 at the end of the year and didn’t have earned income that was more than half of the child’s support.
  • the child was over age 18 and younger than 24 at the end of the year, was a full-time student and didn’t have earned income that was more than half the child’s support.

See IRS Publication 503
See IRS Publication 929
See IRS Publication 972