A just born baby always brings promise into the world. He or she used to bring a tax deduction to the parents, but that’s no longer true under the new tax law. However, the baby can still bring you a tax credit.
Child Tax Credit
Although the deduction is gone in 2018, the child tax credit still exists. In fact, the TCJA made the child tax credit more generous. In 2017, you could only claim $1,000 for a qualifying child, but the amount has doubled for 2018. The child tax credit is per child, so you can claim $4,000 for two kids, and so on. Qualifying children are under age 17 at the end of the year, and lived with you for more than half of the year and did not provide more than half of their own support. Besides your biological children, qualifying children are also stepchildren, foster children, siblings or stepsiblings and grandchildren. Qualifying children are U.S. citizens or U.S. nationals or resident aliens.
Child Tax Credit Income Limitations
There are income limitations for claiming the child tax credit, but they are higher than before. Single parents earning up to $200,000 may claim the full tax credit and may receive a partial credit if earning up to $240,000. Married couples filing jointly may earn up to $400,000 to receive the full credit and receive a partial credit if their income does not exceed $440,000. Keep in mind this is a tax credit, not a deduction, so it comes directly off your tax bill. If you owe the IRS $5,000 prior to including the credit for two children, you will only owe the government $1,000.
Standard Deduction vs. Personal Exemptions 2018
Under the Tax Cuts and Jobs Act bill, passed in late December 2017, the standard deduction jumped to $24,000 for a married couple for 2018, nearly doubling from the previous year’s $11,000. However, the new tax law more or less eliminates the dependent exemption for a child, which was $4,050 per child in 2017 and was set to rise to $4,150 before the passage of the TCJA. Officially, the deduction still exists, but it equals zero. However, the TCJA is set to expire in 2025, so if you had a baby in 2018 and can’t claim the credit, it’s possible the exemption will return by the time your child is in elementary school. If your just born baby has five or more siblings, that’s more than the current standard deduction, so you will end up on the short end of the tax stick as opposed to previous years.
New Baby Tax Credit 2017
As long as your child was out of the womb by 11:59 p.m. on December 31, 2017, you can claim your bundle of joy when you file that year’s taxes. If he or she was born in 2018, you won’t receive the exemption.
In a worst-case scenario, if your child was born alive but died shortly after birth, you may still claim him as a deduction on 2017 taxes. You won’t have a Social Security number for your late baby, but you can write “died” on line 6c, column 2 of form 1040 or 1040A, and attach either a copy of the birth certificate or the record of a live birth from the hospital.
A graduate of New York University, Jane Meggitt's work has appeared in dozens of publications, including PocketSense, Zack's, Financial Advisor, nj.com, LegalZoom and The Nest.