Having a new baby changes your sleep patterns—and it changes how you file your taxes. Here are a few tips:
Typically, new parents fill out a birth registration form at the hospital, which has a box you can check to request a Social Security number. But if your baby wasn’t born in a hospital, or you somehow didn’t get a Social Security number through the birth registration form, you’ll need to make time to visit the nearest Social Security Administration (SSA) branch and request a number in person.
You’ll need to fill out Form SS-5 and have documents to verify your child’s age, identity, and citizenship status—ideally a birth certificate, though a hospital birth record or other medical documents may be sufficient as well. You'll also need to bring a driver's license or passport of your own.
Families can deduct certain amount of money from their federal income taxes for each qualifying dependent child under 17. This is a tax credit, which means it reduces your tax bill on a dollar-for-dollar basis. The Child Tax Credit is also refundable, meaning it can reduce your tax bill to zero and you might be able to get a tax refund check for anything left over.1
You may be able to claim the child and dependent care credit if you paid expenses for the care of a qualifying individual to enable you (and your spouse, if filing a joint return) to work or actively look for work. The amount of the credit is a percentage of the amount of work-related expenses you paid to a provider for the care of a qualifying individual. The percentage depends on your adjusted gross income. If you use childcare, check with your employer to see if they offer a childcare flexible spending account. Similar to a health FSA, these accounts allow you contribute money tax-free toward your childcare expenses. You don’t need to itemize expenses in order to take advantage of the child tax credit or the child and dependent care tax credit. You can claim the standard deduction and still get the Dependent Care Credits.
How you classify yourself can affect how much you can deduct from your tax bill. The standard deductions for tax year 2021 have increased. Married couples filing jointly can dedcuct $25,100, up $300 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $12,550, an increase of $150, and for heads of households, the standard deduction will be $18,800, up $150.
If you’re pregnant, chances are that you visit your doctor and may undergo various medical treatments. The cost of these visits and procedures can add up quickly, even if you have insurance that covers a portion of the bills. Any year you incur significant medical expenses that relate to your pregnancy, the IRS allows you to deduct a portion of the cost on your income taxes, but only if you are eligible to itemize deductions.
For those who adopted a new child, there’s a credit for you as well. For the 2021 tax season, you can get a tax credit for all qualifying adoption expenses up to $14,440 per child, according to the IRS. Those expenses include reasonable adoption fees, court costs and travel expenses. If you adopt a special needs child from within the U.S., you can claim the entire credit, even if your adoption costs were less than $14,440.
Once you have a child, it’s smart to set up a 529 plan for college savings. You will be amazed at how much that account can grow by the time your child goes to college. Any MNSAVES 529 earnings grow free from federal and state tax.2 Withdrawals for qualified higher education expenses at approved institutions are tax-free at both the federal and state level. Withdrawals for up to $10,000 of tuition expenses at a public, private or religious elementary, middle, or high school per student, per year across all 529 plans are also tax-free at the federal level.
Only the federal tax treatment of expenses for K-12 school tuition withdrawals are tax-free. Minnesota taxpayers should be aware that Minnesota law does not currently conform to the federal legislation. Thus, although expenses for K-12 school tuition may not incur federal tax, they may be subject to Minnesota tax, tax recapture consequences for a deduction or tax credit previously claimed, or result in the forfeiture of all or a portion of any previously awarded Matching Grants (the Matching Grant program was an income-based grant program that was discontinued after the 2010 tax year).
As a result, it is important for Minnesota taxpayers to consult their tax advisors before (1) making a withdrawal for K-12 school tuition or (2) making a contribution to a 529 plan which they intend to ultimately withdraw for K-12 school tuition. State tax treatment varies by state. Taxpayers who reside or have income in other states should also consult with a qualified tax advisor before taking any such actions.
You may wish to monitor Minnesota state tax law updates and changes by going to the Minnesota Department of Revenue website. On that page, you can also subscribe to tax law changes emails which will notify you when updates and changes are announced.
You may also wish to reference the FAQ Information for Individuals here.
Your contributions to MNSAVES may qualify for a state tax deduction. Learn more about the tax advantages.
1Consult your legal or tax professional for tax advice.
2If the funds aren't used for qualified higher education expenses, a 10% penalty tax on earnings (as well as federal and state income taxes) may apply.