Welcoming your first child? Tax considerations new parents need to know

Becoming a new parent is life-changing in many ways, and your tax situation is no exception. While sleepless nights and new routines often take center stage, there are tax breaks that potentially can ease some of the financial strain of raising a family. But careful planning is important. Here’s what new parents should know.

Understanding the Child Tax Credit

One of the most valuable tax benefits for parents is the Child Tax Credit. This credit helps reduce the cost of raising children and lowers the taxpayer’s federal income tax liability for each qualifying child under age 17 claimed as a dependent.

For 2026, the Child Tax Credit is up to $2,200 per qualifying child. This credit directly reduces your tax bill dollar for dollar.

However, income thresholds may reduce or eliminate the credit. It begins to phase out once modified adjusted gross income (MAGI) exceeds $400,000 for married couples filing jointly or $200,000 for other filers (singles, heads of household and married filing separately). Even if you don’t qualify for the full credit, you might still be eligible for a partial benefit.

Additionally, a portion of the credit (up to $1,700 per child, subject to earned income limits) may be refundable. This means you could get a refund even if you don’t owe taxes, depending on your income and situation.

Claiming a tax credit for child care expenses

If you need to pay for child care, the Child and Dependent Care Credit can be beneficial. This credit is intended to make it easier for parents to work or seek employment by offsetting some of the cost of child care for qualifying children under age 13.

In 2026, you may claim a percentage — 20% to 50%, depending on your adjusted gross income (AGI) — of up to $3,000 of expenses for one qualifying child or $6,000 for two or more qualifying individuals. So the maximum credit is $1,500 for one qualifying child and $3,000 for two or more.

This is a nonrefundable credit, meaning it can reduce your tax liability to zero but generally won’t result in a refund on its own.

Make sure you’re keeping detailed records of child care expenses. Waiting until tax time to track this information can lead to missed opportunities or added stress.

Do you qualify for the EITC?

For eligible families with lower- to moderate-income, the Earned Income Tax Credit (EITC) can reduce their tax liability and may result in a refund. Taxpayers often overlook the EITC. In fact, it’s estimated that about one in five taxpayers who’re eligible for the EITC don’t claim it.

The amount of the credit depends on the taxpayer’s income, filing status and the number of qualifying children. According to the IRS, the average EITC received nationwide for the 2024 tax year was $2,916.

Because eligibility depends on several factors, it’s important to evaluate your situation as early in the year as possible. Small changes in income or household circumstances can impact eligibility.

Revisit your W-4 and filing status

Becoming a parent can also affect your tax withholding and filing status, so it’s important to review them:

Form W-4. Becoming eligible for tax breaks such as the Child Tax Credit may reduce the amount of federal income tax that needs to be withheld from your paycheck. So updating your Form W-4, “Employee’s Withholding Certificate,” after having a child can potentially maximize your take-home pay during the year. You can use the Tax Withholding Estimator on IRS.gov to help determine the new withholding amount.

Filing status. Your filing status directly impacts the amount of your standard deduction, eligibility for certain deductions and credits, and your total tax liability. For example, some unmarried parents may qualify for head of household status if they meet IRS requirements. This status provides a higher standard deduction and might also result in a lower tax rate (depending on your income level) than filing as single.

Getting ahead on tax planning

With a new child in the picture, now is the time to review your tax strategy. Proactive planning can help you maximize potential tax savings. We’re here to assist you.