Top 5 New Parent Tax Questions Answered
First year filing taxes as a parent? Tax season is here, so we at Let’s Get Set are walking parents like you through the process to make sure you get your full tax refund. Here are the 5 most common questions we are hearing.
Read on for all the details or watch me talk through it in the video below:
1) What money and credits could I be eligible for as a new parent?
Becoming a parent makes you newly eligible for a few key tax credits, which likely means a bigger refund check! Here are the most common credits we want you to know about.
The Earned Income Tax Credit is a refundable tax credit that is dependent on your immigration status, earned income, filing status, and your number of children. You must have a SSN and earned income (meaning money for a job or your own business) to be eligible for it. As you can see in the picture below (which shows thresholds for someone filing as Head of Household), the credit grows as your income increases, then plateaus, and then decreases when your income hits a certain level. There is a formula to calculate it, but it can be as much as $3,584 for a family with one child making between ~$10K and $30K, and even more with more children. It is a powerful credit because it is refundable, which means that you can get it back as part of your refund (as opposed to only being able to use it to wipe out your tax liability).
The Child Tax Credit is another powerful credit for new parents. To qualify for it you must have more than $2,500 in earned income and a child with a SSN. (You can claim this credit if you have an ITIN as long as your child has a SSN.) This credit increases as your income increases, maxing out at $2,000. The portion of the credit that is refundable (again, meaning that can be issued as part of your refund and not just to used to wipe out your tax liability) is capped at $1,400 though.
Last, the Child and Dependent Care Credit is a non-refundable credit, and can be as much as $1,050 for one child. It can be used to decrease the amount of taxes you owe and is intended to help offset expenses for childcare that allow parents to work or to look for work. If you paid someone to care for your child (like in a daycare or in-home center) while you worked or were looking for work you may be able to claim it. To access this credit you need to get a copy of a receipt for your childcare costs over the year and include the taxpayer identification number of the center on your taxes (so either the employer identification number for the center or a SSN for an individual provider).
2) What’s the deal with stimulus check money?
The only way to get stimulus money you are owed is to file taxes for Tax Year 2020. As part of that process you will claim the Recovery Rebate Credit. The amount you are owed will show up on Line 30 of your 1040, which is the final summary of your tax return.
You also may be eligible for even more money than you thought! If you had a child in 2020, you are likely eligible for $1,100 in stimulus check money for them. Families with mixed immigration statuses (ITIN + SSN) are also now eligible to receive those checks as part of their refund. Read more about that here.
To get the new stimulus checks ($1,400) you need to have filed taxes or registered via the non-filer portal in 2020. If the IRS doesn’t have your up-to-date information, get connected with free tax prep and file a 2020 tax return as soon as possible so they know where they can deposit a check for you.
3) What forms do I need to file?
We wrote this post to share the most common forms and documents that new parents need to file. In a nutshell you want taxpayer identification documents (like your SSN or ITIN), any tax forms from your jobs (W-2, 1099, etc.), 2019 wage information (either last year’s return or your income documents from 2019), and a clear understanding of how much stimulus check money you received.
Of course, everyone’s situation is different, so you may need additional forms. Here are some other forms we’ve received questions about. If you receive any of these, be sure to include them on your return! Look out for income-related forms (W-2, 1099-MISC, 1099-NEC), Unemployment Compensation (Form 1099-G), Interest or Dividend Income (Form 1099-T, Form 1099-DIV), Social Security (Forms SSA-1099, RRB-1099), Scholarships (Form 1098-T or W-2) or Student Loan Interest (Form 1098-E).
There are literally hundreds of IRS forms, so if you receive something that has a combination of letters and numbers, and looks like a tax form, it probably is. You should plan to use it to help you file your taxes!
4) How do I determine my filing status?
Your filing status and who you are claiming as a qualifying child is important because it determines the size of your tax refund.
It is based on your marital status and on how much you contribute to covering “the costs of your home”. Kinda bizarre — we know! It is important though because it helps determine how much taxes you owe and the size of your refund. You can use an interactive tool from the IRS to help you identify your status or check out our blog post on the main differences between them. Most new parents we work with file as Head of Household or Married Filing Jointly. That said, each person is different, so it’s important to read through the different scenarios and definitions!
5) If I don’t legally have to file, why should I?
If you only have W-2 income (like a typical hourly job) and make less than the standard deduction which is (as of 2020) $12,400 for single taxpayers, $18,650 for those filing as Head of Household (like a single parent), and $24,800 for married households, you technically don’t have to file.
However, if you don’t file, you are almost certainly leaving money on the table. Here are four main reasons to file.
First, it is the ONLY way you can currently get any 2020 stimulus check money you are owed.
Second, it is the ONLY way you can get credits like the Earned Income Tax Credit and the Child Tax Credit (credits that are thousands of dollars). If you don’t file, the government keeps the money you may be owed. It is as simple as that.
Third, you may have had some taxes taken out of your paycheck already that are called “tax withholdings” that are actually due back to you. This is on Box 2 of your W-2.
Fourth, it seems likely that there will be future stimulus check payments. To get your payments as quickly as possible, it is important for the IRS to have your most up-to-date information.
Use free tax prep so you can keep your full refund!
