Claiming A Newborn On Taxes: What You Need To Know

The birth of a child brings a whole new set of tax breaks for your family. To claim your newborn on your taxes, you must first apply for a Social Security number. You will need this number to claim your child as a dependent on your tax return. The child must be born alive during the current tax year and must have lived with you for at least half the year or from their moment of birth if they're a newborn, including time spent in the hospital. The birth of a child can also impact your filing status. If you are single, having a child may allow you to file as a head of household rather than using the single filing status, giving you a bigger standard deduction and more advantageous tax brackets.

Apply for a Social Security number

To apply for a Social Security number for your newborn, you can request a Social Security card at the hospital when applying for a birth certificate. If you don't do this, you can fill out Form SS-5 with the Social Security Administration and provide proof of the child's age, identity, and U.S. citizenship. The number usually arrives within two weeks of applying.

If you don't receive your child's Social Security number before filing your tax return, you should file an extension using Form 4868. You will need your child's Social Security number to claim them as a dependent on your tax return. Failing to report the number for each dependent can result in a $50 fine and delay your refund.

Determine who can claim the baby

To determine who can claim the baby as a dependent, the baby must have been born alive during the current tax year. The Internal Revenue Service (IRS) will then apply several tests to determine if your child is your tax dependent. These include the relationship, age, support, abode, U.S. citizenship, and joint return tests.

If you are divorced, the IRS generally determines who can claim the newborn by residency. The parent with whom the child lived the most during the tax year (custodial parent) claims them as a dependent. The custodial parent can allow the noncustodial parent to claim the child by signing Form 8332 and giving the form to the other parent.

If you are not married and do not file a joint return, the "Tiebreaker rule" will come into play. In this case, the parent who lived with the baby the longest can claim the baby as a dependent. If you both lived with the baby for the same amount of time, the parent with the higher adjusted gross income can claim the newborn as a dependent child.

File as Head of Household

If you are single, had a baby, and now support that child in the home where you live, you’re likely eligible to use the Head of Household (HOH) filing status. This filing status gives you a larger standard deduction and more favorable tax brackets.

To qualify for Head of Household filing status, you have to pay more than half of the cost of keeping up a household. You also have to be considered unmarried on the last day of the year. This means that you file a separate return, your spouse did not live in the home during the last 6 months of the tax year, and your home was the main home for your child, stepchild, or foster child for at least 6 months of the tax year. You are also able to claim the child as a dependent unless the only reason that you can't claim the child is because the noncustodial parent can claim the child under certain rules.

The IRS considers you married for the tax year if you and your spouse lived separately due to a temporary circumstance. Temporary separations include military service, business trips, and college attendance.

Head of Household filers typically claim a larger standard deduction than taxpayers filing as Single or Married Filing Separately. As a result, Head of Household filers often have lower tax rates. To qualify as Head of Household, a person has to file an individual tax return, be considered unmarried, not be claimed on someone else's tax return, and be able to claim a qualifying dependent on your return.

Qualifying persons can include a child or other dependent who meets certain eligibility criteria. A qualifying child must be your biological or adopted child, stepchild, or foster child. The qualifying child may also be a sibling, step-sibling, or half-sibling. A qualifying child can also be a descendant of one of these relatives (child, grandchild, great-grandchild, etc.). The child must live within your home for more than six months during the tax year and be younger than you. As of the end of the tax year, the child must be under 19 if not a student, or under 24 if a full-time college student. The child must not pay for more than half of their living expenses during the tax year.

In some cases, you may be eligible to file as Head of Household even if you are unable to claim your child as a dependent. If you're divorced or separated and the child lived in your home for more than half of the year, you typically can file as Head of Household. This is true even if the divorce or separation agreement gives the other parent the right to claim the child as a dependent.

Claim tax credits and deductions

Claiming a newborn as a dependent on your taxes can help you qualify for various tax credits and deductions. Here are some of the key credits and deductions you may be able to claim:

Child Tax Credit (CTC)

The Child Tax Credit is a federal tax credit worth up to $2,000 per qualifying child for the 2024 and 2025 tax years. This credit can help reduce your tax bill, and a portion of it may be refundable if it exceeds your income tax liability. To claim this credit, you will need to provide a valid Social Security number for your child.

Earned Income Tax Credit (EITC)

The Earned Income Tax Credit is a credit available to low- and moderate-income taxpayers. The amount of the credit is higher for taxpayers with qualifying children. For the 2024 tax year, the income limit to claim this credit for joint filers with children is $58,784, and for single filers, it is $48,096. To claim the credit, you will need to provide a valid Social Security number for your child.

Child and Dependent Care Credit

If you pay for childcare to enable you to work, you may be eligible for the Child and Dependent Care Credit. This credit is worth up to $1,050 for the care of one child under age 13 or up to $2,100 for the care of two or more children under age 13. The credit is based on your earned income and can be up to 35% of your qualifying childcare expenses, with a maximum expense of $3,000 for one child or $6,000 for two or more children.

Medical Expense Deduction

The cost of giving birth and other medical expenses for your newborn can add up quickly. You may be able to claim a medical expense deduction if these expenses exceed 7.5% of your adjusted gross income (AGI). This includes the cost of breast pumps and lactation supplies. To claim this deduction, you will need to itemize your deductions instead of taking the standard deduction.

Head of Household Filing Status

If you are single, having a child may allow you to file as a head of household instead of using the single filing status. This filing status provides a larger standard deduction and more favourable tax brackets. To qualify as a head of household, you must pay more than half of the cost of maintaining a home for a qualifying person, which typically includes your child.

Accept gifts or participate in a Qualified Tuition Plan

When it comes to having a newborn, there are a lot of things to think about – and one of them is taxes. If you're a new parent, you might want to consider accepting gifts or participating in a Qualified Tuition Plan, also known as a 529 plan. This can be a great way to save for your child's future education expenses and take advantage of some tax benefits.

A 529 plan is a tax-advantaged investment account that allows you to invest money towards your child's education. The main advantage of a 529 plan is the tax benefits that come with it. While you pay taxes on the money you contribute, you aren't taxed on any gains from your investments as long as you use the withdrawals for qualified education expenses. Additionally, in many states, you can claim contributions as a tax deduction or credit on your state income taxes.

When it comes to accepting gifts, the tuition gift tax exclusion allows grandparents and other individuals to reduce their taxable estate while helping a child pay for college. Tuition payments made directly to an educational organization are exempt from gift taxes and the Generation-Skipping Transfer Tax. For example, grandparents don't need to file an IRS gift tax form when money is paid directly to a college, even if it exceeds the annual exclusion amount. However, it's important to note that this exclusion only applies to tuition expenses and not other college costs like books or room and board.

Another option is to contribute money to a child's 529 plan. Contributions to these plans are considered gifts for tax purposes, and up to a certain amount qualifies for the annual gift tax exclusion. This amount changes year to year, so be sure to check the current limit. Grandparents or other individuals can also choose to front-load a larger contribution by treating it as though it were spread evenly over a five-year period. This can be a great way to shelter a significant amount from their taxable estate while retaining control of the assets.

Whether you choose to accept gifts or participate in a Qualified Tuition Plan, it's important to start planning for your child's future education expenses early on. With the ever-increasing cost of higher education, a 529 plan can be a great way to ensure your child has access to the funds they need to pursue their educational goals.

Frequently asked questions