A new year means it’s officially time to start thinking about taxes. And if you’re a parent, there are things you need to know about filing 2023 taxes, whether you just welcomed a baby to add to taxes last year or have a household full of kids. We’ve got all the most important details, plus some new updates for this year. Between inflation and changes in the economic impact payments issued in 2022, our tax advice for parents is aimed at helping you get the best refund available.
The first available date to file taxes is January 24, but be prepared to wait for a refund. Like 2022 taxes, the IRS continues to struggle with a backlog of returns to process. The Treasury Inspector General for the Tax Administration believes that the IRS will not meet all of its goals by the end of 2022 and will continue to have a backlog into the 2023 filing season. Even with their “all-hands-on-deck” approach, 9.6 million tax returns were still awaiting processing at the end of October. However, filing online is still the most efficient method and might save you valuable time, with the average taxpayer receiving their refunds in about 21 days.
When is the tax filing date for 2023?
All federal tax returns and payments must be submitted by April 18, 2023. If you request an extension, the deadline is October 16, 2023.
What to know about filing your taxes if you had a baby last year
Congratulations! Our 2023 tax advice for new parents is simple: You can claim a child born on any day of 2022 and get a deduction on your income taxes. Deductions lower your total amount of taxable income. In some cases, your tax bracket may also be lowered. Even if it’s the last day of the year, your baby is still a full-year dependent for tax purposes. You’ll need to include the baby’s birth certificate as proof that the baby is related to you, and dependent on you. If you adopted a baby this year, send an adoption decree or proof the child was lawfully placed with you for legal adoption.
What’s the benefit of claiming a child as a dependent?
When paying taxes, most of us try to find as many ways to lower our taxable income through deductions and exemptions. Claiming children as dependents is one way to do that. For each dependent, including yourself, you reduce your total taxable income. You can claim one exemption for each dependent, plus an additional exemption for yourself and another for your spouse. An exemption is a fixed amount that changes each tax year and reduces your taxable income. In 2023 for example, the exemption amount is $4,700. You multiply this amount by the number of exemptions you are allowed to take and enter the total on the second page of your tax return.
To qualify as a dependent, children must:
- live more than half the year with you
- not provide more than half of their own financial support
- be under the age of 19, or under 24 if a full-time student
When it’s time to file taxes, you’ll need to include the following for each dependent you’re claiming:
- full names
- social security numbers
- child’s relationship to you
What to know about the Child Tax Credit
Parents of children under 19 may also be eligible for the Child Tax Credit (CTC). Here’s how it works for filing 2023 taxes:
- Under the American Rescue Plan, the Child Tax Credit is $2,000 per child for families who qualify this year. To receive the CTC, your modified adjusted gross income (AGI) must be $400,000 or lower (for married filing jointly) or $200,000 and lower for all other filers. (This is different from previous years when parents received $3,000 dollars for children over six, and $3,600 dollars for younger children.)
- Claim the credit on your Form 1040 or 1040-SR. You’ll also need to fill out Schedule 8812 (“Credits for Qualifying Children and Other Dependents”), and submit it with your 1040.
Do we qualify for the Child and Dependent Care Credit?
Maybe! To help support working parents, the Child and Dependent Care Credit is available to parents who:
- have children under age 13 (or disabled dependents of any age)
- paid a babysitter, summer camp, or other care provider to care so that you could work
- earn less than $400,000 (AGI)
The Child and Dependent Care Credit maxes out at $2,100 this year, and is applied on a sliding scale according to your AGI:
- $125,000 and below: 50% of your care-related expenses
- $125,000 – $183,000: between 20% and 50% of your care-related expenses
- $183,000-$400,000: 20% of your care-related expenses
Are 529 plans tax deductible?
A “qualified tuition plan,” also known as a 529 college saving plan, helps parents sock money away for children’s future education costs while getting tax perks. The funds in the account are available for the beneficiary to use on education-related expenses. There are no federal deductions for contributing to a 529 plan but some states do offer income tax benefits.
What is the Kiddie Tax?
Yes, even kids can pay taxes, and we’re not just talking about YouTubers who’ve hit it big. Kiddie Tax applies to passive income through gifted investments. It was implemented to close a loophole when parents gave stocks and other assets to children so those assets would be taxed at the child’s (lower) income tax rate instead of the parents’. Now children have their own higher tax rate.
What qualifies for the Kiddie Tax?
- Taxable interest
- Dividends
- Capital gains
- Taxable scholarships
- Income produced by gifts from grandparents
- Income produced by custodial accounts under the Uniform Gifts to Minors Act (UGMA)
How to calculate the Kiddie Tax on your 2022 returns:
- The first $1,150 of a child’s unearned income qualifies for the standard deduction
- The next $1,150 is taxed at the child’s income tax rate
- Unearned income above $2,300 is taxed at the parent’s marginal income tax rate
Key dates & figures for 2023 taxes
- For 2022, the standard deduction increased to $12,950 for single filers and $25,900 for married couples filing jointly.
- Income tax brackets went up in 2022 to account for inflation.
- January 14: Taxpayers can begin filing returns through IRS Free File partners or tax software companies (but the returns will not be transmitted to the IRS until January 24th).
- January 18: Due date for tax year 2022 fourth quarter estimated tax payment.
- January 24: IRS begins accepting and processing 2022 tax returns.
- April 18: Due date to file 2022 tax return or request extension and pay tax.
- April 19: Due date to file 2022 tax return or request extension and pay tax owed for those who live in MA or ME.
- October 16: Due date to file for those requesting an extension on their 2021 tax returns.