For new parents, the joys of welcoming a child into the world often come hand-in-hand with the daunting task of navigating the intricacies of the tax season.
While sleep-deprivation and the challenges of parenthood may be at the forefront of your mind, it’s essential to address the new tax implications that accompany this significant life change.
Credits and Considerations in 2024
Fortunately, with the right knowledge, you may discover a host of tax credits and deductions designed to ease the financial burden on new parents.
- Obtain a Social Security Card for Your Child:
Before delving into the world of tax credits, ensure your child has a Social Security number. John Karls, a tax partner at Armanino, advises that claiming your child as a dependent on your tax return requires this crucial identification. Apply for a Social Security card promptly, but be prepared for potential delays in verification. In the meantime, consider filing for a six-month tax extension.
- Head of Household Status:
Single parents are considered heads of households for tax purposes, enabling them to claim a higher standard deduction of $20,800. This is compared to the $13,850 standard deduction for single filers without dependents. It’s important to manually declare your status as a single parent to the IRS, as they won’t automatically recognize it.
- Adoption Tax Credit:
If you adopted a child in 2023, you may qualify for an adoption tax credit of up to $15,950 in adoption-related expenses per child. This includes attorney fees, adoption fees, and travel expenses. Ensure your modified adjusted gross income falls below $239,230 to claim the full credit.
- Child Tax Credit:
New parents in 2023 may qualify for the Child Tax Credit if their adjusted gross income is $200,000 or less (or $400,000 for joint filers). This credit provides financial relief to eligible parents and can contribute significantly to reducing tax liability.
- Child and Dependent Care Credit:
Parents who work and incur childcare expenses may qualify for the Child and Dependent Care Tax Credit. This credit is applicable for up to $3,000 of expenses for one child or $6,000 for two or more children, with the actual credit calculated as a percentage of those expenses.
- Earned Income Tax Credit (EITC):
Having a child may make you eligible for the Earned Income Tax Credit. For one child, adjusted gross income thresholds for eligibility are $46,560 (filing alone) or $53,120 (filing jointly with a spouse), potentially providing up to $3,995 in a refundable tax credit.
- Adjust W-4 Withholding:
If you are employed, updating your W-4 form to reflect your new dependent status is crucial. While this may reduce your tax refund next year, it will increase your regular paychecks by withholding less money, providing immediate financial relief.
Navigating Tax Season for New Parents
While parenthood brings its share of challenges, navigating the tax implications can be made more manageable with a clear understanding of available credits and deductions.
Take the time to ensure compliance with tax regulations and maximize the benefits designed to support new parents during the 2024 tax season.
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