Filing your taxes can be very confusing — especially if you’re claiming your newest child as a dependent for the first time. But if you know the tax breaks you qualify for, your refund could be just the cash you need to fill the gaps in your family’s budget.
Most parents are counting on a refund this tax season to help make ends meet. In fact, 38% of moms plan to use their tax credit to get their family out of debt, according to a recent What to Expect survey. Another 37% say they hope to pay for household expenses, 31% plan to use it to buy something for their child and 20% will pay for childcare.
But how can you make sure you’re not leaving money on the table this tax season? There are a few ways to boost your refund that all parents should be aware of. Certified tax professionals share their best tips on how to get the money you deserve this tax season.
5 ways to maximize your tax credits as a parent
1. Claim a dependent
Claiming a dependent on your tax return can have several tax-related benefits. But what does it mean to claim a dependent?
A dependent is defined by the IRS as a person who depends on another person for financial support. This may include minor children or other relatives. You can claim as many dependents as you want on your tax return, as long as they meet the IRS guidelines for dependents.[1]
While it’s difficult to determine exactly how much a dependent will cost you on your taxes, each dependent you claim lowers your taxable income. This is because they help you qualify for certain credits.
Let’s start with Child Tax Credit. This credit gives families a tax break of up to $2,000 per child. To qualify for the credit, the child must meet certain criteria, such as being under 17 years of age at the end of the year; be your qualifying dependent; and lived with you for more than half the year. For new babies, as long as they were born sometime in the previous calendar year (at least Dec. 31) they qualify for this credit.[2]
The Credit for Other Dependents is another option. It covers any dependent, regardless of age, and allows families to reduce their tax liability by $500 per eligible dependent.[3]
If you don’t qualify for these credits, there may be several reasons. Your child or dependent may not meet the criteria, or you may be above the income limit. (Not more than $200,000 or $400,000 if filing jointly.)
If you’re in a co-parenting situation, claiming a dependent is a bit more complicated. The dependent must be claimed by the custodial parent, or the parent with whom the child lived for a longer period of the year. However, the custodial parent can waive the right to claim a dependent on their tax return and transfer that right to the noncustodial parent.
2. Factor in unpaid maternity leave
If you take unpaid maternity leave, it will reduce your taxable income and you may qualify for tax credits that you wouldn’t otherwise qualify for.
A short-term disability policy can also cover your maternity leave, and it definitely factors in your taxes. If you buy the policy yourself, the benefits are not taxable. But if your employer bought the policy for you, you must pay taxes on those benefits.
These taxes can be confusing because they require you to know the formal process of paying for your vacation and not all employers are completely clear about it when you apply to take vacation. It may be helpful to consult an accountant to help you navigate this information.
3. Deduct the cost of fertility treatments
Fertility treatments can be expensive. In fact, a study from the National Institute of Health found that the median, per-person cost ranged from $1,182 for drugs alone, to $24,373 for in-vitro fertilization (IVF).[4] This is another area that can help you come tax time because you can deduct some medical expenses.
If you itemize the cost of IVF procedures, intrauterine insemination (IUI) procedures and medications related to fertility treatments, you may qualify for a larger tax return, says Michael J. Garry, CFP and founder and CEO of Yardley Wealth Management in Yardley, PA . This means that the government will pay you for a portion of the costs.
It can be helpful to work with an accountant to take advantage of policies like these. They will help determine if your expenses are high enough to qualify for a refund.
4. Contribute to a tax-deductible savings or investment account
Another way to get the most out of your money this tax season? Contribute to a tax-advantaged education savings plan, such as a 529 college savings plan. Several states offer tax deductions or credits for contributions.
If you have a high-deductible health care plan, be sure to use your flexible spending account (FSA) or a dependent care FSA. Both allow you to make pre-tax contributions directly from your employer (before this money goes into your bank account). This lowers your taxable income.
“See if there are savings mechanisms you can take advantage of,” suggests Gary. This may include saving in an IRA or Roth IRA and saving in 529 plans to help pay for college. “Some states allow state income tax deductions for the contribution,” he added. “All of these things can make filing next year more painful.”
5. File your taxes, even if you don’t have to
If you earned less than $13,850 last year, (the standard deduction for 2023), you do not need to complete a tax return. But that doesn’t mean you shouldn’t.
“Although a taxpayer may not be required to file a tax return, they will not receive a refund for withheld taxes and estimated tax payments paid unless a return is filed,” explained Janice Stoudemire, retired CPA and tax content specialist at UWorld CPA Review. “Also, to claim refundable tax credits such as the earned income tax credit, child tax credit, American opportunity tax credit and the premium tax credit, a taxpayer must file a tax return.”
Other advantages of filing a return include ensuring that your future Social Security benefits will be accurate and providing documentation of your income to future creditors, such as a mortgage lender.
Survey method
The Everyday Health Group Pregnancy & Parenting Talk to Moms Monthly Poll was conducted by the Everyday Health Group – Pregnancy and Parenting between January 25 and 29, 2024. We surveyed 453 women 18-45 who are currently pregnant or have at least one child up to 5 years old.
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