Tax Help - Child Tax Benefits

As a new parent, you could be eligible to receive many child-related tax benefits.

Here are 5 factors that could affect the way you prepare your tax return.

You Can Claim a Dependent

A child must meet 5 criteria to qualify as your dependent. The child:

must be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of them.
must be younger than age 19, a full-time student younger than 24 or a disabled child.

must not have provided more than half of his or her own support.
must live with you more than half of the year.
must be a U.S. citizen, resident, or national, or a resident of Canada or Mexico for part of the year.


You Could Qualify for Several Credits

You may qualify for the Child Tax Credit, Earned Income Credit (EIC) and Child Care Credit.
Child Tax Credit — You may be able to get as much as a $1,000 credit per child. An eligible child must be younger than 17. This credit is available regardless of your filing status. However, your credit is reduced if your modified adjusted gross income is:

$110,000 or above if Married Filing Jointly.
$75,000 if Single, Head of Household or Qualifying Widow(er).
$55,000 if Married Filing Separately.

If your credit is limited by your tax, you may be eligible for the additional Child Tax Credit even if your tax is zero. To qualify, your earned income must be more than $11,750. You also may be eligible if you have at least 3 qualifying children and the Social Security and Medicare tax you paid is more than your Earned Income Credit.

Earned Income Credit — The Earned Income Credit (EIC) is a refundable credit available to low-income workers. The amount of the credit varies depending on your income level and the number of qualifying children you have. You may qualify if:

You have 1 qualifying child and your earned income and adjusted gross income are less than $33,241 ($35,241 if Married Filing Jointly).
You have more than 1 qualifying child and your earned income and AGI are less than $37,783 ($39,783 if Married Filing Jointly).

Other conditions apply.


You can't claim the credit if you have more than $2,900 of investment income (for 2007).

You can't claim the credit if you are Married Filing Separately.

You can claim the credit only if you have a valid Social Security number.

You can't claim the credit if you are the qualifying child of another person.
If your child is a qualifying child of another person, either you or the other person may claim the credit based on that child. But a special rule applies if that other person is your divorced or separated spouse. See the Form 1040 instructions.

Child Care Credit — You may be entitled to a credit for paying someone to look after your child while you worked or looked for work. Expenses must be paid for a child younger than 13. If the child reached age 13 during the year, only the expenses paid before the child reached age 13 qualify. The credit is equal to 20% to 35% of your qualifying expenses, depending on your adjusted gross income. You can include up to $3,000 of expenses if you have 1 qualifying child and up to $6,000 if you have more than 1 qualifying child).

To be eligible, you (and your spouse, if married) must maintain a home that you live in with your child. Generally, you (and your spouse, if you are filing jointly) must have some type of earned income during the year, such as wages or self-employment income. Plus, if filing jointly, you may still qualify for the credit if one spouse is disabled or is a full-time student.


Your Filing Status

If you're married and live with your spouse, your filing status does not change now that you're a parent. However, if you're not married (your marital status on the last day of the year determines your status for the entire year), you may be able to file as Head of Household and qualify for a higher standard deduction than when filing as Single. You'll also be eligible to use a more favorable tax table or rate schedule. To file as Head of Household:

Your child must be a qualifying child (see "You Can Claim a Dependent," above) even if you can't claim an exemption for the child.

You must have paid more than half the cost of maintaining a home for yourself and your child.

Your child must have lived with you for more than half the year, or, during the birth year, the child must have lived with you more than half of the portion of the year the child was alive.


Social Security Card for Newborn

Remember to apply for a social security card promptly after your child's birth. The social security number is necessary to get some of the tax breaks to which you are entitled. If nothing else, not having it may cause delays in the processing of your return. To apply for a social security number, file Form SS-5


Gifts for Your Child

Generally, gifts to your child do not count as taxable income, and you won't have to file a tax return on his or her behalf if your child's income is $850 or less. However, any earnings returned on gifts/investments given to your child are usually taxable (although it may be at a kid's rate, which is lower than yours). If your child is younger than 18 and makes more than $1,700 in investment income (for 2006), he or she may be subject to the so-called "kiddie tax," which causes some of the earnings to be taxed at your (the parent's) tax rate.

Related Links:

Tax Tutorial - Dependents

Fact Sheet - Dependents

Assessment - Dependents