Oh Baby, Tax Benefits

Sep 12, 2013

The anticipation of a child being born is an exciting time. There are rooms to decorate, clothes shopping to do and showers to plan. There may also be anxious feelings of how to take care of a baby for first time parents, or worries of the additional expenses associated with having a new member of the family. While it’s true there will be additional expenses, that bundle of joy will also come with a bundle of cash when you file your tax return.

For starters, your new family member will count as an additional exemption, which for 2012 is a $3,800 deduction from taxable income on the Federal Form 1040. Additionally, for Ohio residents in 2012 you will receive a state exemption deduction of $1,700 from Ohio taxable income, plus an additional exemption credit toward tax due of $20.

Another tax benefit you will be qualified for thanks to your new baby is the child tax credit. The child tax credit is a $1,000 reduction in tax due on the Federal Form 1040. If federal tax is less than $1,000 the credit may be refunded as the “Additional Child Tax Credit.” The child tax credit can be claimed for the first 16 years of your child’s life as long as certain requirements are met. These requirements include that the child is claimed as a dependent on your return, lived with you for more than half the year, did not provide over half their support and were a U.S. citizen. The child tax credit is subject to a phase out and starts reducing from $1,000 at the following modified adjusted gross income levels for 2012: $110,000 married filing joint, $55,000 married filing separate and $75,000 single or head of household. The credit will be reduced by $50 for every $1,000 over these thresholds until the credit is zero.

To summarize, your newest family member will provide the following tax benefits as long as all requirements are met: • Federal deductions: $3,800 • Federal credits: $1,000 • Ohio deductions: $1,700 • Ohio credits: $20

So if your due date is near the end of the year find some bumpy roads, grab some hot wings and hope that you don’t have a New Year’s baby because these are some benefits to the tune of $6,520 you won’t want to wait on!

By: Mark Sawyer, CPA

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