The information in this article is up to date for tax year 2023 (taxes filed in 2024).
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.
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 $1,600 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.
Be sure to inform new parents that claiming the CTC may mean receiving their refunds later than usual because of the PATH Act.
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.
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.
For tax year 2023, the maximum adjusted gross income for those 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.
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.