If any of your clients are welcoming a new baby, they’ll be happy to know that they may be eligible to receive a few extra tax benefits once their new bundle of joy arrives. Here are six tax benefits new parents could qualify for when you prepare their tax returns.
Can your clients claim a newborn on their tax return?
Yes, your clients can claim a newborn on their tax return if the baby was born during the tax year, even if the baby was not alive for most of that year. However, if the child was born in the following year, they cannot be claimed as a dependent for the prior tax year, regardless of the length of the pregnancy. For example, if the child was born in December 2024, your client can claim the child on their taxes filed in 2025 for tax year 2024. If the child is born in January 2025, your clients cannot claim them on taxes filed in 2025 for tax year 2024. The baby can be claimed for taxes filed in 2026 for tax year 2025 though.
The Child Tax Credit
The Child Tax Credit (CTC) is the most well-known tax benefit of having a new baby. The CTC includes a $2,000 tax credit per child, only $1,700 of which is refundable. Even if your client’s baby is born or adopted later in the year, they’ll still qualify for the full $2,000 credit.
In addition to the federal Child Tax Credit (CTC), some states offer their own separate child tax credits. The eligibility criteria for state child tax credits can vary from one state to another. Generally, these credits are designed for low- to moderate-income families, so your client’s filing status, income, and the dependents age are considered.
Be sure to inform new parents that claiming the CTC may mean receiving their refunds later than usual because of the PATH Act. The PATH Act includes important rules about refundable tax credits including the CTC, the Earned Income Tax Credit (EITC), and the Additional Child Tax Credit (ACTC) as well. This means if your clients claim these credits, they won’t get their tax refund until after February 15, no matter when they file their taxes.
The Child and Dependent Care Credit
New parents can receive a refundable tax credit for 35% of the amount they paid for qualifying childcare expenses. Families can claim a credit of up to $3,000 for one qualifying individual or $6,000 total for two or more qualifying individuals. It’s important to note that qualifying childcare expenses extend beyond just day care; they also include nanny services, after-school care, and summer day camps.
To calculate and claim the Child and Dependent Care Credit, you need to complete Form 2441 for your clients. This form is important in helping your clients maximize the tax benefits available for childcare costs.
The Earned Income Tax Credit
Not every new parent will qualify for the Earned Income Tax Credit (EITC), but claiming a dependent child raises the income threshold for the EITC, making it far easier to qualify. The EITC is designed to benefit low- and moderate-income household families.
For tax year 2024, the maximum adjusted gross income for your clients claiming zero dependents is $17,640 for single or head of household filers and $24,210 for joint filers. The maximum AGI for those claiming one dependent is $46,560 for single or head of household filers and $53,120 for joint filers.
The Adoption Credit & Exclusion
Adopting a child means your client may qualify for an adoption credit worth up to $15,950 per child. This credit is non-refundable, but any amount that isn’t used to offset taxes this year can be carried forward to offset tax liability in the following years. Additionally, if your client’s employer helped pay for any of their adoption expenses, this amount can be excluded from their taxable income.
To claim this credit for your client, you must file Form 8839, and the adoptive parents need to meet the modified adjusted gross income limits.
Dependent Care Flex Spending Accounts
Paying for childcare for a new little one can be expensive. Fortunately, your clients can save on childcare costs with a Dependent Care Flex Spending Account.
These FSAs allow employees to deposit money into the account directly from their paycheck before taxes are taken out, meaning they’ll end up paying less in taxes overall. In most cases, your clients will need to enroll in a Dependent Care FSA through their employer.
Filing as Head of Household
Unmarried parents can get a tax break by filing as head of household instead of filing as single. To qualify, they’ll need to be considered unmarried for the current tax year, have paid for more than half of their household and qualifying dependent expenses, and the dependent (in this case, their new baby) must live with them for more than half of the year. If you aren’t sure if your client qualifies, this IRS “What’s My Filing Status?” tool can help.
For more information on helping your clients navigate common life changes, check out our post on How Your Client’s Life Changes Impact Their Taxes.
