Are you getting ready to welcome a little bundle of joy into your life? Congrats! All the sleepless nights and dirty diapers will be worth it ten times over. Another great part of having kids? There are plenty of tax benefits that come along with adding another member to your household. Whether you’re a first-time parent or a seasoned pro, take the time to review how your children could affect your tax return this year.
Child Tax Credit
With each new baby, you can get a tax credit of up to $2,000. This credit will lower your tax bill dollar-for-dollar so you ultimately have less taxable income and will pay fewer taxes. Depending on your income level, you may not get as large of a credit. But for couples who have a combined income of less than $400,000 and single parents with less than $200,000, it’s pretty likely that you’ll be able to claim this credit. Plus, up to $1,400 of the credit is refundable so you can get a refund check for the difference if it is greater than your tax liability. Score!
Child Care Tax Credit
For working parents, the child care tax credit can be a saving grace. This credit ranges between $600 and $1,050 if you’re paying for the care of a child under the age of 13, and between $1,200 to $2,100 if you’re paying for two or more children. Various factors, like your income and the cost of the care, will determine exactly how much of the credit you’ll receive.
Additionally, a child care reimbursement account will let you put $5,500 a year away in a tax-advantaged account to help you pay the bills. These are often called Flex Plans, and can often save you more money on child care than the tax credit. Be sure to ask your employer whether they have an option to open a Flex account during open enrollment for insurance.
Earned Income Tax Credit
While this doesn’t directly correlate to having a child, the chances of receiving an earned income tax credit increase greatly when you add a little one into the mix. Based on your income and the number of children you have, you could claim the EITC on your next tax return. For example, if you are joint-filing and have 2 children, you can claim the credit if your income is no more than $51,492. This is a great opportunity for low income families to reduce their taxes.
Did you adopt a child? You can get a tax credit for that as well! It’s possible to earn up to $13,840 to help you offset the cost of bringing an adopted child into your home. However, if your adjusted gross income is higher than $240,000 you probably won’t be able to claim this credit.
College Savings Account
Want to get a head start on saving money for your child’s college education? A Coverdell Education Savings Account allows you to divert $2,000 a year for each child you have. While this won’t allow you to take a deduction on your taxes, the money grows tax-free if they’re used for educational expenses. This can help pay from elementary school, high school, and college!
Being a parent is one of the most exciting adventures in life, but it can also be the most expensive. Get smart about the deductions you’re claiming on your tax return and you might be able to save a good chunk of change!