Babies born this year (right up to midnight New Year’s Eve) make parents eligible for the Child Tax Credit, which is worth up to $1,000 per child. Starting in 2013, the credit will be just $500 per child.
This is one time when being last beats being first:
there is a $500 difference between having a baby before midnight this New Year’s Eve and the baby being born just a minute later. Update 1/2/13: Big news! Since the Fiscal Cliff deal on New Year’s Day, the $1000 Child Tax Credit has been extended through 2012.
The Child Tax Credit isn’t the only tax break new parents need to know when filing their 2012 income tax return; be sure to keep the following in mind, too.
Earned Income Credit can mean sizable tax refunds for low-income workers
Low-income workers may be eligible for the Earned Income Credit, depending on marital status and family size. For example, a married couple with three children may qualify for the maximum credit of $5,891.
As a frequently overlooked tax credit, only 20 percent of those eligible actually claim this credit.
Dependent exemption reduces taxable income
Babies are not required to have Social Security Numbers, but without one they can’t be claimed as dependents. Often parents apply for babies’ Social Security Numbers when applying for their birth certificates.
The $3,800 dependent exemption allows taxpayers to claim additional exemptions for children. Generally, the child must be under 19 (or under 24 and a full-time student), live with the taxpayer more than half the year, not provide more than half of his own support, and be the taxpayer’s son, daughter or grandchild.
Additionally, parents may be eligible for other tax benefits, such as the Child and Dependent Care Credit and head of household filing status.
Understanding how having children and other major life events impact taxes can help you make your money go farther — but as we head into 2013, be sure you understand what impact the so-called Fiscal Cliff will have on your taxes, too.