If you're a new or first-time mama, you already know that your life changed forever with the arrival of your little one. And your finances changed, too—including how you file your taxes.
Research suggests that a full 50% of new parents wish they had felt more financially prepared prior to the arrival of their first child. But there's still time to build your post-baby financial confidence in time for the 2020 tax filing deadline on April 15.
If you had a child in 2019, here are some tax tips, deductions and credits to know about for filing taxes this year.
What tax deductions and credits can new parents get this year?
Your new baby may qualify you for a child tax credit of up to $2,000. The credit is refundable up to $1,400 for taxpayers with earned income of at least $2,500 who have a child under the age of 17 with a Social Security number.
If your newborn does not have a Social Security number yet, you could still qualify for the $500 credit for other dependents. You will need the child's individual tax identification number or ITIN to claim the credit.
Now that you're a new parent, it is also easier to qualify for the Earned Income Tax Credit (EITC), because the income limitation more than doubles for parents. Depending on your filing status and income, this credit can be worth up to $6,557 for 2019. And because the EITC is a refundable credit, you can still get the credit even if you do not owe and have not paid income taxes.
Can we get a tax credit for daycare, childcare or medical expenses?
Childcare is one of the biggest expenses for American parents. If you are working or looking for work, you could be eligible to claim the child and dependent care credit for your childcare expenses. Expenses for childcare for children under 13 at day care facilities, in-home centers, before- and after-school programs or from a nanny or babysitter (even day camp!) could qualify. The maximum credit for one child is $1,050, and the credit amount increases for subsequent children.
You should also check what benefits your employer offers. An employer-sponsored dependent care Flexible Spending Account (FSA) allows you to save up to $5,000 pretax to use toward childcare expenses. This means parents in the 24% tax bracket could save $1,200 by fully funding their FSA.
Another big expense that comes with parenthood: Medical bills from all those pediatric visits, trips to the emergency room, prescriptions and other medical expenses. If you have a health savings account (HSA) or a medical FSA, funds from those accounts may be used to pay for qualified medical expenses for your baby.
What do unmarried parents need to do to save money on their taxes?
Families come in all sizes, but the IRS has very specific definitions about who makes up a "tax family." For the growing number of unmarried couples who are co-parenting, this means you can't both claim your new baby as a dependent (and reap the subsequent tax benefits). Instead, as a couple you will need to choose who gets to claim each child and their benefits on your tax returns. Compare results to find the best overall tax outcome for the entire family.
Filing with "head of household" status can give you better tax benefits than filing as "single" would. The head of household status has lower taxes, a larger standard deduction and higher income thresholds for some tax benefits, like the saver's credit.
You can file as head of household if you are unmarried at the end of the year and paid more than half the cost of maintaining a home for more than half the year for a qualifying child or qualifying relative for head of household purposes.
What are the best filing options for new parents?
The best filing option is the one that delivers the right expertise for your unique tax situation. There is not a one-size-fits-all solution. A tax preparer can offer in-person expert help with any questions you may have about filing taxes as a new parent. If you prefer the DIY approach but have questions, online support is available. For new parents who are really strapped for time (and most of us are), H&R Block has the Tax Pro Go service to let you take advantage of expert tax prep without an office visit by uploading your tax documents online, so you never even have to leave your couch (or nursery). Browse around and find what makes the most sense for your needs.
What should new parents watch out for when filing taxes?
Surprises are for birthday parties, not taxes. You should always know what you're going to pay upfront, and if that changes along the way for any reason, you should be notified versus being surprised by your final tax payment.