Should the Mom Claim a Child the Year the Baby Is Born?

Claiming a newborn for tax purposes can provide valuable financial benefits for parents. Understanding the specific requirements and implications is important to ensure accurate tax filing. Properly claiming a dependent child can lead to significant savings on a tax return.

Eligibility to Claim a Child

To claim a child as a qualifying dependent for tax purposes, several criteria must be met, including relationship, age, residency, support, and joint return tests. The child must be a son, daughter, stepchild, foster child, sibling, half-sibling, step-sibling, or a descendant of any of these. For the age test, the child must be under age 19 at the end of the tax year, or under 24 if a full-time student, unless permanently and totally disabled.

A child must have lived with the taxpayer for more than half of the tax year to satisfy the residency test; temporary absences for reasons like school or medical care are disregarded. The support test requires that the child did not provide more than half of their own financial support for the year. Additionally, the child cannot file a joint tax return for the year, unless it is solely to claim a refund of withheld income tax.

When more than one person could claim the same child, tie-breaker rules determine who is eligible. If both parents can claim the child but do not file a joint return, the child is claimed by the parent with whom the child lived for the longest period during the tax year. If the child lived with each parent for an equal amount of time, the parent with the higher adjusted gross income (AGI) is the one who can claim the child.

Tax Benefits for Claiming a Child

Claiming a qualifying child can unlock several tax advantages. The Child Tax Credit (CTC) offers up to $2,000 per qualifying child, directly reducing the amount of tax owed. A portion of this credit, known as the Additional Child Tax Credit (ACTC), can be refundable, meaning it may result in a refund even if no tax is owed.

Eligibility for the Child Tax Credit is subject to income thresholds, phasing out for modified adjusted gross incomes exceeding $200,000 for single filers or $400,000 for those married filing jointly. Another benefit is the Earned Income Tax Credit (EITC), which provides support to low- and moderate-income working individuals, with larger credits available for families with qualifying children.

Claiming a qualifying child may also enable a taxpayer to file as Head of Household, which offers a higher standard deduction and more favorable tax rates compared to filing as single. To qualify for this filing status, an individual must be considered unmarried on the last day of the tax year and pay more than half the cost of maintaining a home for a qualifying person. For dependents who do not qualify for the Child Tax Credit, such as those age 17 or older, the Credit for Other Dependents may be available, providing up to $500 per qualifying dependent.

How Birth Year Impacts Claiming

The tax rules for claiming a child in the year they are born are straightforward. Even if a baby is born late in the tax year, such as on December 31st, they are considered to have lived with the taxpayer for the entire year for tax purposes. This means there is no pro-rating of the tax benefits based on the child’s birth date.

The child must have lived with the taxpayer for the entire period they were alive during that tax year. For instance, if a child was born in October, they must have lived with the taxpayer from October through December 31st to meet this aspect of the residency test. All other general eligibility criteria, such as the relationship, age, and support tests, must still be satisfied.

Making the Decision for Co-Parents

For co-parents, deciding who claims the child in the birth year requires clear communication. The parent with whom the child lived for the greater number of nights during the tax year is considered the custodial parent and is typically the one who can claim the child. This is because the residency test for a qualifying child prioritizes the parent who provided the primary home.

A non-custodial parent may claim the child for certain tax benefits if the custodial parent agrees to release their claim. This is formalized using IRS Form 8332, “Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent.” By signing this form, the custodial parent allows the non-custodial parent to claim the Child Tax Credit and the Credit for Other Dependents.

Even with Form 8332, certain benefits, such as the Earned Income Tax Credit and the Head of Household filing status, generally remain with the custodial parent. To avoid potential disputes and processing delays from the IRS, it is advisable for co-parents to have a written agreement or court order specifying which parent will claim the child for tax purposes each year. This helps ensure that only one parent claims the child, preventing complications.