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. Tax benefits of having a child include credits like Child Tax Credit, Child and Dependent Care Credit, Dependent Care Flexible Spending Accounts, Earned Income Tax Credit (EITC), Adoption Credit, and Adoption Exclusion should all be considered once their tax return includes a dependent. The first step is to determine whether your clients can claim the newborn on their return, then you can guide them on how having a child affects their taxes.
Can your clients claim a newborn on their tax return?
In most cases, a baby born at any point during the tax year can be claimed as a dependent, even if they were born on December 31. To qualify, the child must meet the IRS rules for a qualifying child, which include relationship, residency, age, and support tests. Additionally, for credits like the Child Tax Credit, the newborn must have a valid Social Security Number (SSN). Confirming these basics is essential before applying any of the tax benefits available to new parents.
When can your clients claim a newborn?
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 2025, your client can claim the child on their 2025 tax return (filed in 2026). If the child is born in January 2026, your clients cannot claim them on their 2025 taxes (filed in 2026). The baby can be claimed on their 2026 tax return (filed in 2027) though.
1. The Child Tax Credit
The Child Tax Credit (CTC) is the most well-known tax benefit of having a new baby. Under the One Big Beautiful Bill, the CTC has been permanently increased to $2,200 tax credit per qualifying child. The refundable portion of the credit remains at a maximum of $1,700 with adjustments for inflation in future years. Even if your client’s baby is born or adopted later in the year, they’ll still qualify for the full $2,200 credit.
The OBBB has also changed the Social Security number (SSN) requirement for claiming this credit. For tax years 2018 through 2024 only the child was required to have a valid SSN to qualify or the credit. The taxpayer could have a SSN or an Individual Taxpayer Identification Number (ITIN) to claim the credit. Beginning in 2025, both the taxpayer and the qualifying child must have valid SSNs in order to claim the CTC. For joint returns, only one spouse must have a SSN.
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.
2. The Child and Dependent Care Credit
The Child and Dependent Care Credit allows families to claim a refundable tax credit to help offset the cost of childcare. Families can claim up to $3,000 for one qualifying individual or $6,000 total for two or more qualifying individuals.
For tax years before 2026, new parents can receive a refundable tax credit for 35% of the amount they paid for qualifying childcare expenses. Starting with tax year 2026, the OBBB expands the credit to a maximum of 50% for families with an AGI under $15,000. The credit rate will gradually reduce to a minimum of 20% as income increases.
The Child and Dependent Care Credit will also now phase out over two tiers. The first tier is for AGIs over $15,000, the credit rate is reduced by 1% for every $2,000 of AGI above that threshold, but not below 35%.
The second tier is for AGIs above $75,000 (or $150,000 for joint filers), the rate is reduced by 1% for every $2,000 ($4,000 for joint filers), with a minimum rate of 20%.
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.
3. 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.
For 2025, the contribution limit is $5,000 per household (or $2,500 if married filing separately). This limit is scheduled to increase in 2026 to $7,500 per household (or $3,750 for married filing separately), giving your clients even more opportunity to save on childcare costs.
4. 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.
5. The Adoption Credit & Exclusion
Prior to the OBBB, adopting a child means your client may qualify for an adoption credit worth up to $16,810 in qualified expenses per child was100% non-refundable. Beginning in 2025, the credit has increased to $17,280 and is partially refundable, up to $5,000. The credit amount and refundable portion will be adjusted for inflation annually.
Any amount that isn’t refundable or used to offset tax liability can still be carried forward to 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. For 2025, the full credit is available for MAGI up to $259,190, phases out between $259,190 and $299,190, and is not available above $299,190. These thresholds are indexed for inflation and will adjust annually.
6. 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.
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