Am I Eligible for Tax Breaks With Baby?

Tax season is approaching and I’m wondering if I’m eligible for any breaks if I have children?
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Updated February 24, 2023
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Welcoming baby into your life comes with a slew of changes—your heart, your budget and yes, even your taxes, will never be the same. Thankfully, the taxes part comes with several benefits, including helpful tax credits for everything from childcare to medical expenses. Below, see our list of major tax breaks to look into once you’re a parent so you can save those extra dollars for baby’s future instead.

Tax Breaks for Everyday Costs

The 2017 Tax Cuts and Jobs Act majorly overhauled tax codes. One noteworthy outcome: It eliminated the exemptions you’d get per child but increased the standard deduction—nearly doubling it for those with children filing head of household or married filing jointly. (Personal exemptions and the standard deduction serve similar purposes of exempting part of your income from taxation.)

While personal exemptions were eliminated, the Tax Cuts and Jobs Act doubled the maximum child tax credit (CTC) from $1,000 to $2,000 per qualifying child under 17. Tax credits work like gift cards from the IRS. They’re essentially a dollar-for-dollar reduction to any taxes you may owe. After calculating how much you owe, treat the credit like cash and wipe its amount directly off your tax total. The remaining balance is what you’ll pay the IRS. Part of this credit (up to $1,400) is also refundable—this portion is also referred to as the additional child tax credit (ACTC), and it can be paid out to you even if you don’t owe taxes. Refundable tax credits can actually increase your refund amount if there’s any money leftover after your taxes are reduced to zero.

Generally, your child qualifies if they meet the following criteria:

  • They’re under 17 years of age at the end of the tax year.
  • They meet the relationship and residency test.
  • They don’t provide more than half of their own support for the tax year.
  • They lived with you for more than half of the tax year.
  • No one else is claiming the child as a dependent.
  • They are a US citizen, US national or a US resident alien.
  • They have a social security number.

This tax credit isn’t for everyone. This credit begins to decrease in value as your gross income exceeds $200,000 as head of household or $400,000 for married couples filing jointly. The Earned Income Tax Credit is a refundable tax credit available to anyone who has worked, but your eligibility is based on both income and family size. As your family grows, so does the maximum credit amount.

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Tax Breaks for Childcare Expenses

Have a nanny or use a daycare? You can set aside $3,000 of your childcare costs ($6,000 if you have two or more kids). Then, you can multiply that amount by 20 to 35 percent, depending on your income. (To get the full 35 percent, you need to earn under $15,000. As your income rises, the percent you can take goes down.) The answer is the amount of money you can slice from your tax total. The best part: This credit is for everyone. There’s no income ceiling.

Tax Breaks for Medical Expenses

Medical expenses are only deductible if they add up to more than 7.5 percent of your income. Some companies, however, offer Flexible Spending Accounts (FSAs) as part of their benefits package. These special accounts allow you to put money aside for certain out-of-pocket healthcare costs, tax-free. (Currently $3,050 per year, per employer.) You can use this money for medical expenses for you, your spouse and your dependents (think doctor copays, eye exams and over-the-counter drugs). Typically, these accounts are on a use-or-lose basis, which means that if there’s money left in there when the year ends, it’ll evaporate unspent. Check with your employer to know if they offer a grace period or if they allow any of the money to rollover into the next year.

If you have access to a Health Savings Account, you can make pre-tax contributions whether or not you have kids, and any healthcare expenses can be withdrawn tax-freen for eligible expenses. This can be a great way to make some of those medical expenses a little more affordable. And unlike a FLEX account, the money is yours and will simply rollover if you don’t use it all within the calendar year. Just note that there are federally imposed limits to how much you can contribute to an HSA each year.

If you’re adopting, you may be able to take a credit of up to $14,890 for your expenses related to the adoption in 2022. ​​The adoption tax credit for 2023 is $15,950.

Tax Breaks for College Savings

Some states will allow you to deduct contributions made to a 529 college savings plan for state income tax purposes. Head here to see if your state participates.

Both 529s and Coverdell Education Savings Accounts allow you to save money for education that can eventually be withdrawn tax-free. Additional help for college expenses can be found with the American Opportunity Credit (up to $2,500 per student, per year for undergraduates) and the Lifetime Learning Credit (up to $2,000 per student, per year for graduate students).

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