Do You Get a Tax Break for Having a Baby?

Bringing a new baby into the family marks a significant life change, impacting a family’s financial landscape. The United States tax system offers various provisions designed to support families with children. Understanding these can lead to meaningful tax savings or increased refunds, helping to offset some of the costs associated with raising a child.

Key Tax Credits for Your Child

The Child Tax Credit (CTC) is a primary tax benefit for families with qualifying children. For the 2024 tax year, this credit can be worth up to $2,000 per qualifying dependent child. To be considered a “qualifying child,” the dependent must meet several criteria:
Be under 17 years old at the end of the tax year.
Be your son, daughter, stepchild, eligible foster child, sibling, or a descendant of one of these.
Not have provided more than half of their own support.
Have lived with you for more than half of the tax year.
Be a U.S. citizen, U.S. national, or U.S. resident alien with a valid Social Security number issued before the tax return due date.

Income limitations can affect the amount of the Child Tax Credit a family receives. For the 2024 tax year, the full credit is available to married couples filing jointly with an annual income up to $400,000, and for all other filers, the income threshold is $200,000. The credit amount begins to reduce by $50 for every $1,000 of income exceeding these limits. The Child Tax Credit is partially refundable, known as the Additional Child Tax Credit (ACTC).

The Additional Child Tax Credit allows eligible families to receive a portion of the credit as a refund, even if they owe no tax. For the 2024 tax year, up to $1,700 per qualifying child may be refundable. To qualify for the ACTC, a taxpayer must have earned income exceeding $2,500. The refundable amount is generally 15% of earned income above this threshold, up to the maximum refundable amount. Both the Child Tax Credit and the Additional Child Tax Credit are claimed on Form 1040 with a completed Schedule 8812.

For dependents who do not meet the Child Tax Credit criteria, such as older children or other relatives, the Credit for Other Dependents (ODC) may be available. This credit can provide a non-refundable credit of up to $500 per qualifying dependent. While the ODC cannot generate a tax refund, it can reduce a taxpayer’s overall tax liability. To claim this credit, the dependent must be a U.S. citizen, national, or resident alien and possess a valid taxpayer identification number.

Credits for Child-Related Costs

Beyond the direct credits for having a child, the tax code offers benefits for specific expenses incurred due to child care. The Child and Dependent Care Credit (CDCC) helps offset costs paid for the care of a qualifying individual. This credit applies to expenses for a child under age 13, or a spouse or dependent physically or mentally unable to care for themselves. Expenses must be incurred to enable the taxpayer, and their spouse if filing jointly, to work or look for work.

Eligible expenses for the CDCC include payments for services such as daycare, preschool, and before- or after-school care. The credit amount is calculated as a percentage of these expenses, with maximum limits. For one qualifying individual, the maximum expenses considered are $3,000; for two or more, the limit increases to $6,000. The percentage of expenses claimed varies based on adjusted gross income, ranging from 20% to 35%. Both parents must generally have earned income to qualify, unless one spouse is a full-time student or unable to care for themselves. This credit is nonrefundable.

Another significant credit for families is the Adoption Credit, which assists with costs associated with adopting an eligible child. For adoptions finalized in 2024, this credit can be worth up to $16,810 in qualified adoption expenses per child. Qualified adoption expenses are reasonable and necessary costs directly related to the legal adoption, including adoption fees, attorney fees, court costs, and travel expenses such as meals and lodging. Expenses paid before an eligible child has been identified, like home study fees, can also qualify.

The Adoption Credit is nonrefundable. Any unused credit can be carried forward for up to five years. The credit begins to phase out for taxpayers with a modified adjusted gross income above certain thresholds, which for 2024 starts at $252,150 and is completely eliminated for incomes exceeding $292,150. If an employer provides adoption benefits, those benefits may be excludable from income up to the same maximum amount as the credit, but you cannot claim both the credit and the exclusion for the same expenses. Form 8839 is used to claim the Adoption Credit.

Broader Tax Implications and Adjustments

Bringing a new baby into the family can also open doors to other tax advantages and adjustments beyond specific credits. For an unmarried taxpayer who pays more than half the cost of maintaining a home, having a qualifying child can enable them to file as Head of Household. This filing status offers a larger standard deduction and more favorable tax brackets compared to filing as Single. To qualify, the taxpayer must be unmarried on the last day of the tax year and have a qualifying person, such as their child, living with them for more than half the year.

The presence of a qualifying child can also significantly increase the amount of Earned Income Tax Credit (EITC) a low-to-moderate-income taxpayer may receive. The EITC is a refundable credit, meaning it can result in a tax refund even if no tax was owed. The amount of EITC depends on income, filing status, and the number of qualifying children, with higher credits available for those with more qualifying children.

Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) offer tax advantages for medical and dependent care expenses, which can be beneficial with a new baby. Contributions to HSAs and FSAs are made with pre-tax dollars, reducing taxable income. Funds from these accounts can be used for qualified medical expenses, including childbirth and baby care, or for dependent care expenses in the case of FSAs, on a tax-free basis. HSAs are paired with high-deductible health plans, while FSAs are employer-sponsored benefits that have a “use-it-or-lose-it” rule.

Considering these potential tax changes, taxpayers should adjust their income tax withholding. Updating Form W-4 with an employer allows individuals to account for new credits and deductions they may be eligible for. This adjustment helps ensure the correct amount of tax is withheld from each paycheck throughout the year, preventing a large tax bill at year-end or an excessive refund.