Although there are a number of tax breaks you can get for having children, neither the Internal Revenue Service nor individual states offer a credit specifically for your first child. Claiming your baby as a dependent gives you an additional exemption, and depending on your income level and tax liability, you may qualify for a child tax credit.
Deductions vs. Credits
Tax breaks come in two main flavors. Deductions reduce your taxable income, while you subtract credits from your tax liability. Both offer you a way to pay less in taxes, but dollar-for-dollar, credits give you a bigger tax break. Example: A $1,000 deduction lowers your taxable income by $1,000. If you are in the 15 percent tax bracket, you can cut $150 off your tax bill. A $1,000 credit, however, is subtracted off whatever tax you owe, so cuts the full $1,000 off your tax bill.
As of 2011, to take any child tax deduction or credit, you'll need to prove to the IRS that your baby is a "qualifying child." That means the child must be your son or daughter by birth, adopted or foster child placed with you by court order, or the child of your legal spouse. The baby must live with you for at least six months of the year, or since birth, if less than six months old on December 31. Your baby must be a U.S. citizen, U.S. national or resident aliens. Qualifying children must be your dependents as of 11:59 pm on December 31 of the tax year, and cannot provide more than half of their own support during that year.
Claiming as a Dependent
Each dependent claimed on your taxes provides a $3,700 exemption, lowering your taxable income by $3,700. You will need a Social Security number to claim your baby for any tax deductions or credits. Because your tax return is not due until April 15 -- October 15 with an extension -- you'll have plenty of time to obtain a Social Security number before filing.
Child Tax Credits
The federal Child Tax Credit allows you to take up to $1,000 per qualifying child right off your tax bill beginning in the year of the baby's birth, no matter what date the child was born. Your Child Tax Credit is lower if your modified adjust gross income is more than $110,000 for married filing jointly, $75,000 for single, head of household or qualifying widower, or $55,000 for married filing separately. Modified AGI is your AGI with certain foreign income and tax exclusions added back. If you owe less than $1,000 in tax your credit will be limited to the amount of your tax liability, but you may qualify for the Additional Child Tax Credit to make up the difference. Some states also offer child tax credits, including California, Massachusetts, New York and North Carolina.
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