| When there is a birth of a child, or an adoption of a | | | | if you are single, you are allowed to file under the |
| child, you look at ways to save money for the | | | | status “head of household” meaning they |
| upbringing of such child. Here are some important | | | | beat the amount of standard deduction and more |
| methods. | | | | beneficial tax bracket range. However, to qualify |
| Before discussing the methods, it is important to | | | | yourself as the head of household, you have to pay |
| remember that you need to get a social security | | | | more than 50% of the cost of providing home for a |
| number for your child. For claiming any tax benefit, | | | | qualified person. |
| you need to quote the social security number for the | | | | 5. Claiming earned income credit (EIC) - If your |
| child. If you fail to report the number, you are | | | | income on the joint return for the year 2008 is below |
| subject to a fine of $50 and your refund is delayed | | | | $37,000, you qualify to claim the earned income |
| for such omission. | | | | credit. This limit would have been $15,880 for a |
| You can get the social security card for the | | | | couple without children. So your eligibility increases |
| newborns at the hospital when you apply his/her | | | | by a substantial amount on arrival of a new baby in |
| birth certificate. For an adopted child, you will need | | | | your family. Remember, if you have two or more |
| to apply in form SS-5 with the social security | | | | children, the limit is $41,646. |
| administration with necessary proof for the age and | | | | 6. Reducing your withholding – As you are |
| citizenship of the child. | | | | claiming an extra dependent in your family, and |
| Once you have the social security number you are | | | | subsequently reducing your tax bill, you can reduce |
| set to apply for tax benefits. Here are the tips | | | | tax withholding from your paycheck. This will |
| 1. Getting increased tax rebate check – If your | | | | increase your take home pay. By taking into |
| child is born or if you have adopted a child in 2008, | | | | account the child tax credit, you can further reduce |
| you are entitled for an extra credit of $300 in your | | | | withholding on your W-4, which means extra cash for |
| tax return for 2008. This is because and a rebate | | | | you per month. |
| check is usually based on information in your 2007 | | | | 7. Claiming credit for childcare – If you are |
| tax return. | | | | working and paying for childcare, you can claim a |
| 2. Claiming the exemption of dependency – If | | | | credit in the range of $600 to $1050 for care of one |
| you claim your child as dependent in your 2008 tax | | | | child under 13 or in the range of $1200 to $2100 for |
| return, you can claim an extra exemption of $3500 | | | | care of two or more children under the age of 13. |
| which can directly save $875 for you on the | | | | The credit for lower income people is higher (up to |
| assumption that you are in 25% tax bracket. You | | | | 35% of qualifying cost) while it reduces for people |
| can claim the entire exemption amount even if the | | | | with higher income to 20% with AGI more than |
| child was born or adopted on any date of the year! | | | | $43,000. |
| 3. Claiming Child tax credit – The new baby | | | | 8. Claiming credit for adoption – If you adopted |
| coming to your family gives you a child tax credit of | | | | child, there is a tax credit available to you of |
| $1000 and it continues until your child turns 17. This | | | | $11,650. If you adopt a child with ‘special |
| tax credit is available for the total amount even | | | | needs’, then you can claim the entire credit of |
| though the child was born on adopted on any date | | | | $11,650 even though you spend less. Remember, |
| of the year. This tax credit is very important as it | | | | this credit is phased out for AGI increase from |
| reduces your tax burden directly by $1000. | | | | $174,730 to $214,730. |
| 4. Claim correct filing status – If you are filing as | | | | The task of upbringing a child is very crucial and IRS |
| married filing jointly, there is no change in your filing | | | | extends its share to you. |
| status on the birth or adoption of a child. However | | | | |