What do first-time parents need to know to prepare for tax time?

[NSTaxes2021]

What do first-time parents need to know to prepare for tax time?

[erinm0717]

Hi NSTaxes2021! 

Congratulations on being parents! This must be such an exciting time for you.  

There are now several credits you can qualify for:

1) Child Tax Credit  - You can get up to $3,600 for a qualifying child under age 6.  Here is a helpful link on this: https://turbotax.intuit.com/tax-tips/family/child-tax-credit/L9ZIjdlZz

2) Earned Income Credit - Based on your income, you could potentially qualify for this credit. Here is a link on this which explains the qualifications: https://turbotax.intuit.com/tax-tips/tax-deductions-and-credits/earned-income-credit/L4lmLBNWa

3) Child Care Credit: You can also qualify for a credit based on day care and child care payments that you make.  It can be between $600 and $1,050.  Here is a link of some information on that: https://turbotax.intuit.com/tax-tips/family/the-ins-and-outs-of-the-child-and-dependent-care-tax-cre....

4) Advanced Child Tax Credit Payments - There are now also advanced payments available for the Child Tax Credit.  Here is a link with some great information and FAQ's for this: https://www.irs.gov/credits-deductions/2021-child-tax-credit-and-advance-child-tax-credit-payments-f....  Here is the link for the portal to update dependent and payment info: https://www.irs.gov/credits-deductions/child-tax-credit-update-portal

I hope this was helpful!  Also, remember to adjust your W-4 at work for the extra dependent.  Here is an additional link with some other great benefits that are available to you now: https://turbotax.intuit.com/tax-tips/family/birth-of-a-child/L26LBBTkd.  Congratulations again and have a wonderful day!

Sincerely,

Erin M, EA

[LauraJCPA]

Adding a child to your family is a wonderful and joyous thing! And yes, there are several items you should know about when it comes to your taxes and your expanded family!

First and foremost is the Child Tax Credit. The Child Tax Credit can significantly reduce your tax bill if you meet all seven requirements: 1. age, 2. relationship, 3. support, 4. dependent status, 5. citizenship, 6. length of residency and 7. family income. You and/or your child must pass all seven to claim this tax credit. One thing to note is a child born during 2021 is considered as having lived with you for the whole year. Use our child tax credit calculator to determine your eligibility for tax year 2020 or tax year 2021 found in this article:
Child Tax Credit Calculator and Top 7 Requirements 

The American Rescue Plan raised the maximum Child Tax Credit in 2021 to $3,600 per child for qualifying children under the age of 6 and to $3,000 per child for qualifying children ages 6 through 17. Before 2021, the credit was worth up to $2,000 per eligible child, and children 17 years and older were not eligible for the credit.

If you pay someone to care for your child while you work or are looking for work (or are going to school!) you can get a credit for that as well. The Child and Dependent Care Credit can put more money in your pocket and for 2021 only is refundable. That means you can receive the full credit as a refund even if you have no tax liability. Here is a link to the instructions for Form 2441, Child and Dependent Care Credit.

Instructions for Form 2441, Child and Dependent Care Credit 

Last, consider opening a 529 Plan for your child in your state of residence. You can make contributions to this plan for future education expenses. Many are deductible on your state return and the withdrawals are not taxable when used for qualified expenses!