It’s tax season (gee, fun!). For new parents this means new deductions, credits and exemptions you’ve never previously qualified for (that part is actually is fun). But this year you might be more confused than ever about what the recent tax overhaul means to your 2017 tax filing.
To help you tackle your taxes with confidence, here are a few common tax questions and answers for new parents, covering all the major deductions and credits you may need to know about now. Each situation and family is unique, so use this as a handy starting point. Then talk to your tax preparer or CPA to dig into personalized suggestions just for your situation.
When is this year’s deadline to file taxes?
You have until Tuesday, April 17, 2018, to file your 2017 tax return (the usual tax day, April 15th, is a Sunday, and the 16th is Emancipation Day).
How will President Trump’s new tax law affect the taxes I pay this year?
You’ve probably heard a lot about taxes lately, since the Tax Cuts and Jobs Act recently signed into law by President Trump made some significant changes to tax law. (For parents, that includes doubling the Child Tax Credit to $ 2,000 per child and doubling the standard deduction to $ 12,000 if you’re single or $ 24,000 if you’re married).
These new credits and deductions, however, won’t go into effect until the 2018 tax year, which means you won’t be taking them into consideration until you file your taxes in 2019. The taxes you’re filing this year for your earnings in 2017 are relatively unchanged from recent years.
Will I have to pay a penalty if I didn’t have health insurance last year?
Yes. Although the tax law Congress passed last December got rid of the individual health insurance mandate, which requires you to have health insurance or pay a fee, changes won’t go into effect until the 2019 tax year. That means that if you weren’t enrolled in a health insurance plan in 2017, you will (with a few exceptions) have to pay a fee on your federal tax return this year. The same goes for your 2018 tax return if you aren’t signed up for health insurance this year.
In 2017, the fee for not having health insurance is 2.5 percent of your household income, up to the cost of the total yearly premium of a Bronze plan sold on the healthcare marketplace, OR $ 695 per adult and $ 347.50 per child under 18 up to a maximum of $ 2,085, whichever is greater.
Having a child changes your life in hundreds of ways…and your tax return is definitely one of them. Talk to your tax preparer and do your research, and your first tax season as a new parent should be no sweat.
My baby is brand new! Can I claim her on last year’s taxes?
Depends on how new that little bundle is. If your baby was born on December 31st, 2017, or any day before that, then yes, she counts as an additional dependent for the entire 2017 tax year. Just don’t forget to bring baby’s social security number with you when filing your taxes (or keep it on hand if you file them yourself). Now, remembering where you put the baby’s social security card is a whole separate issue…
Does simply having a kid give me a tax benefit?
Yes! Having a child gives you a dependent, which reduces your taxable income by $ 4,050 per child. That can reduce the taxes you pay by as much as $ 1,000 for each qualifying child. A dependent is defined as someone who:
- Is under 19 years old at the end of the calendar year (or under 24 if they’re a full-time student)
- Lives with you for more than half the year (although there are some exceptions)
- Is financially supported by you (older kids can have a job, but it can’t cover more than half of their expenses)
- Can’t be claimed as a dependent on anyone else’s taxes (this rule usually applies to divorced parents)
Who can claim our baby if I just got divorced or am not married?
Only one parent can claim a child as a dependent. It’s usually the parent who has primary custody or lives with the baby the majority of the time. As long as your ex or co-parent isn’t claiming baby as a dependent, you shouldn’t run into any complications.
Can I get a tax break for the cost of child care?
As a working parent, you can claim the Child and Dependent Care Tax Credit. It’s a tax credit, not a tax deduction, which means it reduces your taxes dollar for dollar. So if you get a $ 500 tax credit, your tax bill is reduced by $ 500. And unlike some tax credits, you can claim this one no matter how much money you make.
The amount of credit you’ll get is calculated based on what you paid for day care, nursery school, nannies, preschool or day camp. Your date night sitter, however, doesn’t count…even if you went out on a lot of dates.
One big caveat: You have to qualify in order to claim this credit. Here are the conditions you need to meet in order to claim the Child and Dependent Care Tax Credit on your return:
- You (and your spouse, if you’re married) were working last year and earned a paycheck from a job (not from investments or savings); you were looking for work; you were a full-time student and attended school for at least five months out of the year; or you are disabled.
- You paid for child care for dependent children 12 and under who you’re claiming as a dependent on your tax return.
- The child care provider was not your spouse or the biological parent of the child, or a dependent you claim on your taxes.
- Your filing status is Single, Married Filing Jointly, Head of Household or Qualifying Widow(er) with a Dependent Child.
The maximum total amount of child care expenses you’re allowed to claim is $ 3,000 for one child or $ 6,000 for two. The credit you’ll receive is between 20 to 35 percent of your allowable expenses, which is based on your adjusted gross income. You also need the caretaker’s name, address and social security number for your tax forms (so make sure you grab those the next time you’re at the day care or talking to your caretaker).
Do I get any tax benefits if I adopted a baby or child last year?
Many adoptive parents qualify for the Adoption Tax Credit, which gives you up to $ 13,570 per child to cover qualified adoption expenses. Those include adoption fees, court costs, lawyer’s fees, travel expenses and other expenses directly related to legally adopting your child. (If you’re adopting your spouse’s child, the Adoption Tax Credit doesn’t apply.)
To get the full credit, your modified adjusted gross income (MAGI) must be under $ 203,540. If you earn between $ 203,540 and $ 243,540, the benefit gets reduced. If you’re making over $ 243,540, you don’t qualify for the credit. You might also qualify for an additional state adoption tax credit depending on where you live, so ask your tax preparer.
Any other tax credits I should know about as a parent?
There are two more to keep in mind for this year’s return: the Child Tax Credit and Earned Income Tax Credit. Both are dependent on how much money you made last year.
Child Tax Credit
For the 2017 tax year, the amount you can claim on your Child Tax Credit remains the same as last year (it doubles next year). If you qualify, you can earn a credit of up to $ 1,000 for each child under 17 years old at the end of the year. Here’s how to know if you’re eligible to claim the Child Tax Credit:
- You’re married filing jointly and your combined income is under $ 110,000.
- You’re filing as Head of Household and you made under $ 75,000.
- You’re married filing separately, and you make under $ 55,000.
Earned Income Credit
Qualifying for this credit, which is intended for people with low-to-moderate incomes, is slightly more complicated: It’s based on the amount you made combined with how many children you have. Here’s the deal:
- If you’re married and filing jointly with one child, you must earn less than $ 45,207. If you have two children, you have to earn less than $ 50,597. And if you have three or more children, you have to earn less than $ 53,930.
- If you’re single, filing as head of household or are widowed, with one child, you have to earn less than $ 39,617. If you have two children, you have to earn less than $ 45,007, and if you have three or more children, you have to earn less than $ 48,340. Your investment income must also be less than $ 3,450 for the year.
If you qualify, the maximum amount of credit you can earn (regardless of filing status) is:
- $ 3,400 if you have one child
- $ 5,616 if you have two children
- $ 6,318 if you have three or more children