Taxes are always the most complicated when you start a new family, simply because things change. You now have more “things” on your tax return that you have to fill out, and if you’re not careful, it can work against you.
Beyond just your tax return, there are a variety of laws and programs that you have to report to the government that can trigger fines. The biggest of these is the Affordable Care Act (Obamacare). Not signing up your brand new baby could result in fines.
Check out these tax tips for new families:
What New Families Need To Know About Obamacare
First, the Affordable Care Act, also known as Obamacare, says that everyone must be signed up for health insurance – either through an employer to through the healthcare marketplace.
Most adults have known this, but a common thing that new parents may forget about in the rush of bringing home baby is that your new baby has to be signed up for insurance as well. As soon as your child is born, you must add him or her to your healthcare plan. You will get fined if you don’t sign up your child for health insurance.
If you don’t have health insurance coverage in 2015, you will pay the higher of these two amounts:
- 2% of your yearly household income. (Only the amount of income above the tax filing threshold, about $10,000 for an individual, is used to calculate the penalty.) The maximum penalty is the national average premium for a bronze plan.
- $325 per person for the year ($162.50 per child under 18). The maximum penalty per family using this method is $975.
Key Takeaway: Get insurance for your family.
Having A Baby Can Simply Just Lower Your Tax Bill
In 2015, if you make less than $432,400 AGI for married couples filing jointly or $258,250 for a single head of household, you can reduce the amount of income that is taxed by $4,000 per child. This means the higher your income, the more valuable this deduction becomes. That’s because it lowers the amount that is taxed at the highest income bracket.
This simple exemption is great especially for lower income filers, because it can significantly reduce your tax bill.
Two Common Ways To Lower Your Taxes For New Families
Finally, there are two other common actions that you can possibly take to lower your taxes while providing for your new family. If you have to get child care because both parents work (or if you are a single parent), you can possibly deduct some of your expenses or get a credit to offset some tax on your return.
Child Tax Credit: This is a $1,000 credit that directly reduces the amount of tax you owe for every child. Limits: $110,000 for married couples filing jointly $75,000 for a single head of household $55,000 for a married person filing separately. There are also limits on how much you can take on the child care tax credit if your employer pays for any child care costs, or if you take advantage of a Dependent Care FSA.
Dependent Care FSA: If you know that your new child will be in some sort of daycare, you may want to contribute to a daycare spending account. Any amount you contribute will be pre-tax money, so it will lower your taxable income. However, contributions could lower your child care tax credit if you qualify. Contribution Limits: $5,000 per year, if you are married and filing a joint return, or if you are a single parent $2,500 per year, if you are married and filing separately.
What other tax tips do you have for new families?