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Valor Tax Relief Team
Professional Tax Resolution Specialists
Key Takeaways
- New parents can reduce their tax bill by claiming credits such as the Child Tax Credit, Earned Income Tax Credit, and Child and Dependent Care Credit.
- The Child Tax Credit offers up to $2,200 per qualifying child, with up to $1,700 refundable through the Additional Child Tax Credit if you earn at least $2,500.
- To claim child-related credits, your child must have a valid Social Security Number or ITIN and meet IRS age, residency, and relationship requirements.
- Working parents may qualify for the Child and Dependent Care Credit or use a Dependent Care FSA to save on childcare expenses like daycare or preschool.
- Families who adopt can claim the Adoption Tax Credit, worth up to $17,280 per child, and may also exclude employer-provided adoption assistance from taxable income.
- Choosing the correct filing status (such as Head of Household or Married Filing Jointly) and keeping detailed records helps maximize available tax benefits.
Understanding Tax Benefits for New Parents
Adding a new child to your family brings joy and new responsibilities, along with significant changes to your tax situation. If you've recently had a baby through birth or adoption, the IRS provides multiple credits and deductions that can reduce your tax bill or boost your refund. Learning how to properly claim these benefits helps new parents maximize every available tax advantage.
This comprehensive guide provides essential tax tips for new parents, including how to claim your child as a dependent, qualify for the Child Tax Credit, and take advantage of related benefits such as the Earned Income Tax Credit and the Adoption Tax Credit. We'll walk you through each credit and deduction, explain eligibility requirements, and provide practical strategies to maximize your savings.
Before You File: Important Steps for New Parents
After having a child, there are several tax-related actions you should complete before filing your return. Completing these preliminary tasks helps ensure you can claim all available benefits and prevents processing delays.
Get Your Child's Social Security Number or ITIN
To claim your child as a dependent or qualify for most child-related tax credits, your child must have a valid Social Security Number (SSN) or, in certain cases, an Individual Taxpayer Identification Number (ITIN).
Most parents can apply for their baby's SSN while completing birth certificate paperwork at the hospital. If you didn't complete this step, visit your local Social Security Administration office and submit Form SS-5, Application for a Social Security Card, along with proof of identity and age.
Important: Without a valid SSN (or ITIN for noncitizen dependents), you won't be able to claim major tax credits such as the Child Tax Credit (CTC) or the Earned Income Tax Credit (EITC). It's best to obtain this number well before tax season begins.
Check and Update Your Tax Withholding
Adding a new dependent alters your household's tax situation. Your federal income tax liability may decrease throughout the year. To ensure the correct amount is withheld from your paycheck, update your Form W-4 with your employer.
The IRS Tax Withholding Estimator can help determine whether you should adjust your withholding. For example, adding a child might lower your overall tax liability enough that you could increase your take-home pay each paycheck. On the other hand, if you and your spouse both work, you'll want to ensure your combined withholding still covers your tax obligations.
The Child Tax Credit (CTC)
The Child Tax Credit is one of the most valuable tax benefits available to new parents. It's designed to help offset the cost of raising children by reducing the amount of tax you owe.
What the Child Tax Credit Is Worth
For the 2025 tax year (returns filed in 2026), the Child Tax Credit is worth up to $2,200 per qualifying child under the age of 17. If you have little or no federal income tax liability, you may still qualify for a refund through the Additional Child Tax Credit (ACTC). This is worth up to $1,700 per qualifying child, depending on your earned income. To be eligible for the ACTC, you must have at least $2,500 in earned income during the tax year.
This refundable portion ensures that even lower-income families can benefit from the credit, helping offset the costs of raising children while supporting working parents.
Who Qualifies for the Child Tax Credit
To claim the CTC, your child must meet several IRS criteria:
- Age: Under 17 at the end of the tax year.
- Relationship: Must be your son, daughter, stepchild, foster child, sibling, stepsibling, half-sibling, or a descendant like a grandchild or niece/nephew.
- Dependent Status: Be claimed as a dependent on your tax return and not file a joint return unless solely to claim a tax refund.
- Residency: The child must have resided with you for more than half the tax year.
- Support: You must provide more than half of the child's financial support during the year.
- Citizenship: Must be a U.S. citizen, U.S. national, or U.S. resident alien with a valid SSN.
Your eligibility also depends on income. The credit begins to phase out when your modified adjusted gross income (MAGI) exceeds $400,000 for married couples filing jointly or $200,000 for all other filers.
How to Claim the Child Tax Credit
Claim the CTC on Form 1040 or 1040-SR, and attach Schedule 8812, Credits for Qualifying Children and Other Dependents. Make sure to include your child's SSN and carefully answer all residency and relationship questions on the form.
Credit for Other Dependents (ODC)
If your dependent doesn't qualify for the Child Tax Credit, for instance, because they are 17 or older, you may still claim the Credit for Other Dependents (ODC).
Eligibility for the Credit for Other Dependents
The Credit for Other Dependents can be claimed for dependents of any age, including children age 17 or older, elderly parents, or other qualifying relatives. You may claim this credit in addition to the Child and Dependent Care Credit and the Earned Income Tax Credit if you meet the eligibility requirements for those credits. To qualify, the relative must have gross income below $5,200 in 2025. Most non-taxable income sources, including Social Security benefits, are excluded from this income calculation.
Consider a scenario where your 18-year-old is enrolled full-time in college and you cover more than half of their living expenses. In this case, you can likely claim them under the ODC even though they no longer qualify for the CTC.
Credit Amount and Income Limits
The ODC is worth up to $500 per qualifying dependent and is nonrefundable. This means it can reduce your tax bill to zero, but you cannot receive any unused portion as a tax refund. Income limits mirror those of the CTC, phasing out at $400,000 for married couples filing jointly and $200,000 for all other filing statuses.
Child and Dependent Care Credit
For many working parents, childcare is one of the largest expenses. The Child and Dependent Care Credit helps offset the cost of care while you work or actively look for work.
Who Qualifies for the Credit
You may claim this nonrefundable credit if you paid for care for a child under age 13 so that you (and your spouse, if filing jointly) could work or seek employment. Qualifying care expenses include daycare centers, preschool programs, after-school care, summer day camps, and babysitting services. However, expenses for tutoring, overnight camps, and school tuition are not eligible.
How to Claim
To claim the credit, file Form 2441, Child and Dependent Care Expenses, with your tax return. You'll need the caregiver's name, address, and taxpayer identification number. The credit is based on a percentage of qualifying expenses and is based on AGI. For tax year 2025, the credit ranges from 20% to 35% of qualifying expenses. Beginning in tax year 2026, this will increase to up to 50% of qualifying expenses.
For instance, if you paid $6,000 for daycare for two children and your income qualifies for a 20% credit rate, you could receive a $1,200 credit.
Earned Income Tax Credit (EITC)
The Earned Income Tax Credit (EITC) is a refundable credit for low- to moderate-income working families. Having a child can significantly increase the amount of your EITC.
Who Qualifies for the EITC
To qualify, you must have earned income (such as wages or self-employment earnings) and meet certain income limits that vary by filing status and number of qualifying children.
Residency and Age Rules
Each qualifying child must have a valid SSN and live with you for more than half the year. You must also meet general requirements for age (at least 25 and under 65 if claiming without a qualifying child) and filing status.
Adoption Tax Credit and Exclusion
If you adopted a child, you may qualify for the Adoption Tax Credit or exclusion for employer-provided adoption assistance.
Qualifying Expenses
You can claim a credit for reasonable adoption-related costs, such as:
- Adoption fees
- Court and attorney costs
- Travel expenses related to the adoption process
Credit Amount
For 2025, the maximum adoption credit is $17,280 per child. The credit was previously nonrefundable. However, under the Big Beautiful Bill, up to $5,000 of the credit is refundable and will be adjusted annually for inflation. The unused portion of the nonrefundable credit can be carried forward up to 5 subsequent tax years.
Employer-Provided Assistance
Many employers provide adoption assistance programs as part of their benefits package. You may exclude up to the same maximum amount from your taxable income if your employer provided financial assistance toward adoption expenses. However, you may not use the same expenses for both the exclusion and the Adoption Tax Credit. You must apply employer assistance as an exclusion first and then claim the credit for remaining out-of-pocket expenses.
Special Rules for Adopting a Child with Special Needs
If you adopt a U.S. child with special needs, you can claim the full credit amount even if your actual expenses were less than the maximum credit amount.
Dependent Care Flexible Spending Account (FSA)
A Dependent Care FSA allows you to set aside pre-tax dollars through your employer to pay for eligible childcare expenses.
How It Works
Annual contribution limits are $5,000 per household ($2,500 if married filing separately). Starting in 2026, the contribution limit rises to $7,500 ($3,750 for married couples filing separately). Contributions are deducted from your paycheck before taxes, reducing taxable income. Eligible expenses include daycare, babysitters, and after-school care for children under age 13.
Coordination with the Child and Dependent Care Credit
You can use both the FSA and the credit, but not for the same expenses. For instance, if you pay $8,000 in childcare and use $5,000 through an FSA, you can only claim the credit for the remaining $3,000.
Filing Status and Other Considerations
Your filing status and other deductions can also affect how much you save. Selecting the appropriate status and maintaining detailed records can significantly impact your tax savings.
Choosing the Right Filing Status
Your filing status determines your tax rates, standard deduction, and credit eligibility. Parents may be eligible for various filing statuses based on their marital situation and living arrangements.
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Married Filing Jointly: Typically offers the lowest overall tax rate and highest standard deduction.
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Head of Household: Available if you're unmarried, cover more than half of your household expenses, and your child resides with you for more than half the year.
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Single or Married Filing Separately: May limit certain credits, such as the EITC.
For example, a single parent who supports their child may qualify as Head of Household, gaining a higher standard deduction and favorable tax brackets.
Other Tax Deductions for New Parents
In addition to credits, new parents may be able to deduct certain expenses or benefits related to childbirth and family care.
Medical Expense Deductions
If you itemize deductions, you can claim unreimbursed medical expenses that exceed 7.5% of your adjusted gross income (AGI). Eligible expenses include:
- Prenatal care
- Labor and delivery costs
- Hospital stays
- Breast pumps and lactation supplies
Employer Benefits and Paid Leave
Many employers provide tax-advantaged benefits such as Dependent Care Assistance Programs (DCAPs) or paid family leave. Some of these may be partially or fully excluded from taxable income.
Always review your employer's year-end tax documents (Forms W-2 and 1099) to confirm how these benefits were reported.
How to Claim These Benefits
Claiming tax credits and deductions requires accurate information and proper documentation. Errors or missing details can delay your refund or result in disallowed credits.
Forms and Documentation to Keep
Before filing, gather the following:
- Your child's Social Security card
- Childcare provider statements or receipts (for Form 2441)
- Adoption records, if applicable
- Proof of residency, such as school or medical records showing your child's address
- Employer-provided benefit summaries
Using IRS Tools and Resources
The IRS provides several online tools to help you confirm eligibility and calculate your benefits:
- Child Tax Credit Eligibility Assistant
- Interactive Tax Assistant for credit qualifications
- Tax Withholding Estimator to adjust paycheck withholding
For new parents, understanding how your child changes your tax situation is essential. From the Child Tax Credit and Earned Income Tax Credit to deductions for medical expenses and adoption costs, these tax benefits can offer thousands of dollars in potential savings.
Tax Help for New Parents
Taking steps early, like obtaining your child's SSN, keeping detailed records, and reviewing your filing status, ensures you claim every credit you're entitled to. By following these tax tips for new parents, you can navigate your first tax season with confidence and maximize your family's financial benefits under current IRS rules.
If you're facing tax challenges, have questions about claiming dependents, or need help resolving tax issues, professional assistance is available. Tax professionals can help ensure accuracy, maximize credits and deductions, and provide guidance on complex situations.
When Tax Problems Arise
- • Explore an Offer in Compromise if you can't pay your tax debt in full. This option may allow you to settle your tax debt for less than the full amount owed.
- • Request Penalty Abatement if eligible. The IRS may waive penalties if you can show reasonable cause for errors or late filing.
- • Consider Installment Agreements to pay your tax debt over time if you can't pay in full immediately.
Stay Compliant
- • Keep detailed records of all tax-related documents, including your child's SSN and childcare receipts.
- • Update your tax withholding when your family situation changes to avoid underpayment penalties.
- • Use our services hub for tailored guidance on tax resolution and compliance.
Frequently Asked Questions
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