Congratulations! A tiny human has changed your priorities, your sleep schedule, and your taxes.
You’ve probably been too sleep-deprived to realize this, but your child may save you some money on taxes this year. We’ve partnered with H&R block to show how new parents can save on their taxes, so you have the money you need for diapers and day care.
Claim Your Child
Once you have a kid (and your kid has a social security number), you’ll be able to claim your child on your taxes. This means that you’ll get to shelter up to $4,050 (per kid) from taxation. If you gave birth or adopted your child before midnight on December 31st, 2017, then they are probably a “qualifying child.”
To make sure you qualify to claim your kid, H&R Block will ask you a few quick questions to be sure your kid meets the IRS standards. They’ll also do the “behind the scenes” math to phase out the exemption if you earn too much money ($261,500- $384,000 for individuals or $313,800- $436,300 for married filing jointly).
Foster parents may also qualify for the dependent exemption in 2017. You can also use H&R Block to see if you can claim the deduction for your foster child. Taking a few seconds to look into it, could help you save hundreds of dollars off your tax bill.
Get Extra Credit(s)
Parents not only get to shelter more income from taxes, they often qualify for tax credits (that actually offset the amount you owe). These credits include the earned income tax credit which is a credit for low to moderate income earners. A person (or couple) can claim an extra $3,400 credit if they meet the income standards. H&R Block More Zero is one of the only online tax software packages that will allow you to claim the earned income tax credit without paying for an upgrade. (That’s right! You can claim this credit for free, which is why we have recommended H&R Block as our #1 choice for filing your taxes this year).
Parents may also qualify for the child tax credit of up to $1,000 per child depending on their income levels (up to $110,000 for married couples filing jointly or $75,000 for heads of household).
If your child is in daycare (while you and your spouse work full-time or attend school), you may be able to claim the non-refundable Dependent Care Tax Credit. You can claim up to $3,000 for one child or $6,000 for two or more kids. The exact amount you can can take as a credit ranges from 20-35% depending on your income level. This is one credit where it definitely pays to have a great software doing the math for you. Not sure whether the art camp or after-school program can be claimed? H&R Block has great knowledge articles to help you clear up the requirements, and if your still not sure you can pay $49.99 to get help from a pro (and have your taxes reviewed by a professional).
An even more confusing credit for parents to claim is the Adoption Tax Credit. Whether you’re in the process of adopting, or your adoption finalized a few years ago, you may qualify for up to $13,570 in tax credits per child. Excess credits can be carried forward for up to five years.
H&R Block More Zero finds and maximizes every single one of these credits for free. Filers with rental properties, investments or side income may have to upgrade to a paid version of H&R Block, but the upgraded versions still consistently made the list for best tax software of 2018.
Upgrade Your Status
If you’re a single parent, and you qualify to claim your child, your personal status gets upgraded to head of household. This gives you the ability to shelter more of your income compared to a single filer.
Not sure if you qualify for head of household filing status? A simple quiz on H&R Block makes it easy to find out. (Trust me, the quiz is a lot easier than using IRS publication 501 to figure it out on your own).
Itemize With Ease
One opportunity for tax savings that a lot of parents miss is the opportunity to itemize medical and dental expenses. Of course, you can only deduct these expenses if you itemize your taxes, and you can only deduct expenses that exceed 7.5% of your adjusted gross income.
That being said, if you’re on a high deductible health plan or you’ve simply been unlucky, it’s worth trying to figure out if you qualify to deduct medical expenses.
When you have a child you can include any un-reimbursed expenses including:
H&R Block simplifies itemizing your deductions through a great user interface. Plus it does the math to help you decide whether you should itemize or not. Even better, many people can still itemize using H&R Block’s free software, More Zero.
Congratulations On Your Newest Addition (and Deduction)!
Becoming a parent turns your life upside down, and it can be a costly endeavor. However, at tax time, kids can be a welcome way to lower your bill.
If you’re looking for a great way to maximize your child-related deductions and credits, look no further than H&R Block. Many parents can maximize their refund while still qualifying for the completely free online filing program, H&R Block More Zero.
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.