Added a Child to Your Family?

Then add a dependency exemption. An exemption is available the year your child is born if you provide your child’s Social Security number on your tax return. In 2007, the exemption amount is $3,400. (It’s reduced if you exceed certain income levels.)

Age 13. As a working parent of a child under age 13, you may qualify for a tax break on your child-care expenses. The child-care credit is 20% to 35% of employment-related child-care expenses, depending on income. The maximum amount of expenses eligible for the credit is $3,000 for one child and $6,000 for two or more.

Age 17. The child tax credit is available up until the year your child turns age 17. In 2007, the maximum credit is $1,000 per qualified child. The credit is phased out above certain income amounts.

Age 18. A child’s 18th birthday is always a big one. It may be meaningful for tax purposes, as well. Before age 18, a child pays tax on unearned income (interest and dividends, for instance) over $1,700 (in 2007) at his or her parents’ highest marginal rate if that tax is higher than the child would otherwise pay. This "kiddie tax” ends in the year your child turns age 18. At that point, your child’s own tax rates will apply to both earned and unearned income. (This will change in 2008 to 19 and for full time students age 24)

Age 19. Your child may continue to qualify as your dependent until the year he or she reaches age 19. If your child is enrolled as a full-time student for some part of five calendar months during the year, then he or she can qualify as your dependent until age 24.  Please note that, beginning in 2008, any full-time student continuing to be claimed as your dependent from age 19-24 will continue to be subject to the kiddie tax.