Tax Information for new parents

You and your wife are expecting a child before the end of the year?  That is great!  Welcome to the wonderful world of parenthood.  With parenthood comes a lot of changes including diaper changes, putting a baby car seat in the car, and tax advantages.  What?  You had a child because you loved your wife and you didn't know that there were really great tax reasons to have a child?  

To get ready for tax time, the first thing that you need to do is request a social security number for your new bundle of joy  Without the social security number, you will not be able to claim your new son or daughter on your taxes.  Most hospitals have the forms on hand in order for you to apply for the social security number.  They usually hand you the form right after they had you the form for the birth certificate.  It is easiest to do at the hospital.

 Another benefit is the child tax credit.  Put simply, the government gives you $1,000 per child as a tax credit.  Tax credits are good.  This is money that will either pay any tax that you owe or add to your refund.  A second benefit is the dependent exemption.  This lowers your tax base, or the amount of money that you will have to pay taxes on.  You get to lower your tax base $4,000 per dependent.  Dependents are you, your wife, your son/daughter among other members of your family who depend on you to provide for them.

If you are not married, having a child could change your tax status.  Your tax status could change from Single to Head of Household.  In order to be head of household, you need to have a dependent and you need to provide at least 50% of what they need in order to survive.  The advantage of being in the Head of Household status?  Head of Household gives a better tax rate than single.  Don't get me wrong, it is not as good as Married Filing Jointly, but it is an improvement over Single.

Another benefit would be the Child and Dependent Care Tax Credit. Again, tax credit is good.  It means money to pay off the taxes the government says that you owe or money that will be added to your refund (This is referred to as a refundable credit).  The Child and Dependent Care Tax Credit requires you have a son or daughter and that you pay someone to watch him or her.  You will be able to get a credit of some of that money back as a credit.  It is a percentage that changes based on the amount you make.

One last tax benefit would be the Earned Income Tax Credit.  This tax credit requires you to work and make money.  You get a tax credit based on your income and the amount of dependents that live with you.