Being a parent at tax time involves more than just claiming the Child Tax Credit on your income tax return. In fact, many parents make the same common mistakes and miss out on opportunities to lower their taxable income through tax deductions, which can end up causing them to pay more in taxes than necessary.
Tax tips for parents
To help you avoid these errors, we’ve compiled a list of some common tax mistakes made by filers who are parents — and some tips on how to avoid them.
Mistake 1: Not getting a Social Security number for a newborn
One crucial mistake parents often make is failing to obtain a Social Security number (SSN) for their newborn child. Make it a priority to apply for an SSN for your child as soon as possible after their birth. You’ll need this number to claim certain tax benefits, such as the Child Tax Credit.
Make sure you triple-check that your child’s SSN is accurate when filing as well to avoid any delays or potential penalties.
Mistake 2: Failing to keep careful records of childcare providers
If you employ a nanny or have a child in daycare, it’s important to maintain detailed records of your childcare expenses. You’ll need these records in order to claim the Child and Dependent Care Tax Credit, which is worth anywhere from 20-35 percent of qualifying childcare expenses depending on your income. You can claim a max of $3,000 in qualified expenses per qualifying dependent or $6,000 for two or more qualifying dependents.
When keeping childcare records, include the provider’s name, address, and taxpayer identification number (usually their SSN or employer identification number). Keep track of your childcare expenses throughout the year and include all supporting documentation, such as receipts or invoices.
Mistake 3: Not claiming head of household status as a single parent
Single parents often qualify for the head of household filing status, which can result in lower tax liability compared to filing as single. To qualify, you must meet specific criteria — in simplest terms, you must be unmarried and support other people (usually your children).
In addition to not being legally married, the IRS considers you to be unmarried if all of the following are true:
- You didn’t live with your spouse for the last six months of the tax year
- You paid more than half the cost of your home during the year
- Your home is the primary residence of your qualifying child
Claiming head of household status allows you a higher standard deduction — $20,800 in 2023 versus only $13,850 if you filed as single.
Mistake 4: Missing out on the Earned Income Tax Credit
The Earned Income Tax Credit (EITC) is a refundable credit available to low-income taxpayers. The amount you can claim depends on your filing status, adjusted gross income (AGI)/earned income, and how many children you have, but for tax year 2022, the maximum credit is $6,935 (increasing to $7,430 for 2023). Since it’s a refundable credit, it could potentially increase your tax refund as well. Check out our EITC calculator to help determine if you could be eligible to claim this tax credit.
Mistake 5: Reporting a child’s income on your tax return
Another mistake to avoid is reporting your child’s income on your own tax return. Although it may seem like a simple solution for dealing with a small W-2 form, it’s important to understand that children who are required to file a tax return must report their earned income on their own return. However, you can still claim the child as a dependent on your tax return if your child fits the requirements.
A child’s investment income is a little different — we go into that in more detail in this article.
Mistake 6: Missing out on education tax breaks
Don’t overlook valuable education-related tax breaks designed to help reduce the financial burden of higher education expenses.
For example, the American Opportunity Credit and the Lifetime Learning Credit are available for qualified education expenses, such as tuition and fees. Additionally, tax-advantaged savings accounts like the Coverdell Education Savings Account (ESA) or the Qualified Tuition Program (QTP), also known as a 529 plan, offer tax benefits when used for educational purposes. Make sure to explore and understand these options to take full advantage of the available educational tax breaks.
The bottom line
As a parent, it’s crucial to be aware of the common tax mistakes that can cost you money. When you use TaxAct® as your income tax preparation software, we can further help you reduce these errors and keep you informed about available tax benefits so you can optimize your tax situation and potentially save significant amounts of money.
Ready to file? Check out our tax filing checklist to double-check that you have everything you need to get started.