6 Tax Breaks For New Parents
It’s no lie that babies bring a sense of joy to their families, however, they can impact your tax situation in multiple ways and they are pretty expensive! Having the knowledge to know which tax breaks you can deduct and not deduct is very important as it relates to your tax bill and can cut your bill by thousands!
The good news is that there are a number of tax breaks new parents can qualify for which includes tax deductions, tax credits, and tax exemptions that would help with the cost of raising a child. Here are 6 tax breaks new parents can take advantage of.
1. Child Tax Credit
This is a credit that was created to help working families with the cost of raising their children. Because of the American Rescue Plan, the new CTC will be $3,600 per child ages 0-6 and $3,000 per child ages 6-17 with the exception of TY 21. Huge deal!
Parents who are eligible will get the monthly payments starting in mid-July and continuing until December.
2. Earned Income Tax Credit
This is a tax credit that provides relief by paying taxes for working Americans with low or modest income from wages, self-employment, or farming. You can receive between $3,461 and $6,431 depending on your income, filing status, and the number of qualifying children.
A portion of the EITC is also refundable even if you owe $0, and you can apply without any children (but there are eligibility requirements to meet).
3. Child and Dependent Care Credit
This is a new tax credit under tax reform and is available for dependents for whom taxpayers cannot claim the Child Tax Credit. These dependents may include dependent children who are age 17 or older at the end of 2018 or parents or other qualifying relatives supported by the taxpayer.
“According to the IRS, parents may not take this credit if their filing status is married filing separately.”
This credit is nonrefundable, which means there is no refund if a portion of the credit is remaining even if the tax burden is $0.
4. Adoption Credit
You may be eligible to take a tax credit for qualifying expenses paid to adopt a child. A qualifying expense includes
5. Higher Education Tax Credit
Education tax credits can help offset the costs of education if you are in college. The American Opportunity and the Lifetime Learning Credits are education tax credits that reduce your federal income tax dollar for dollar, unlike a deduction, which reduces your-taxable income.
6. Student Loan Interest Deduction
If you meet the requirements, qualifying for this deduction allows you to deduct up to $2,500 for interest paid on student loans. Even if you itemize your deduction, you can still claim this deduction because it is an adjustment to income.
There aren’t enough tax breaks and exemptions to cancel out the costs associated with raising children to adulthood, but there are enough to help reduce the burden. Considering everything that goes into child-rearing, being aware of tax credits and tax deductions you can claim goes a long way!
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This material has been prepared for informational purposes, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisers before engaging in any transaction.