By Welcoming a new baby is an exciting—and expensive—time. Between sleepless nights and endless diaper changes, taxes might be the last thing on your mind. But taking advantage of available tax benefits can help ease the financial burden of parenthood.
1. Adjust Your Withholding
A new dependent means you may qualify for additional tax allowances. Review your W-4 with your employer’s payroll department to adjust withholding so you keep more of each paycheck rather than waiting for a refund at tax time.
2. Use a Dependent Care FSA
If your employer offers a Dependent Care Flexible Spending Account (FSA), consider enrolling. Contributions are made with pre-tax dollars, lowering your taxable income while helping cover daycare, preschool, or after-school care costs.
3. Start a 529 Plan Early
It’s never too soon to save for education. A 529 plan offers tax-free growth on contributions, and withdrawals for qualified education expenses remain untaxed. Some states even provide additional deductions or credits for contributions.
4. Claim the Earned Income Tax Credit (EITC)
Lower-income families may qualify for the EITC, a refundable credit that can significantly reduce taxes owed—or even result in a refund. The amount varies based on income and family size, making it especially valuable for new parents.
5. Adoption Tax Credit
Adoptive parents can claim a nonrefundable credit of up to $15,000 per child to help cover adoption-related expenses. While it can’t exceed your tax liability, any remaining credit can sometimes be carried forward.
6. Take the Child & Dependent Care Credit
If you pay for childcare so you (and your spouse, if applicable) can work, this credit helps offset costs. Eligible expenses up to $3,000 for one child or $6,000 for two or more may qualify for a percentage-based credit.
7. Don’t Overlook the Child Tax Credit
For children under 17, parents can claim up to $2,000 per child, with $1,600 potentially refundable in 2024. This credit phases out at higher incomes but can still provide meaningful savings.
Final Thoughts
Parenthood comes with plenty of expenses, but smart tax planning can help ease the financial strain. From education savings to childcare credits, these benefits put money back in your pocket—letting you focus on what really matters.
If you’re unsure which breaks apply to you, consulting a tax professional can ensure you maximize every available opportunity. After all, every dollar saved is one more you can invest in your growing family.