Parenthood brings more than sleepless nights and packed schedules—it also introduces new responsibilities when it comes to managing your finances, especially during tax season. While raising children already comes with considerable expenses, overlooking tax-related benefits can make it even more costly.
Many parents make the same mistakes every year when filing their returns, often resulting in missed deductions, delayed refunds, or lost credits they were otherwise eligible to claim. Understanding these mistakes and learning how to avoid them can lead to meaningful financial savings.
We focused on two common early tax mistakes: not securing a Social Security number for your newborn and failing to maintain proper records for childcare expenses. Both errors may seem minor but can cause major disruptions to your return. Let’s break down these issues in detail to help you stay on track.
Mistake 1: Not Obtaining a Social Security Number for Your Newborn
Welcoming a new baby comes with a long checklist, but one item that often gets overlooked is applying for a Social Security number. While it might not seem like a pressing matter during the newborn phase, this number is critical when you file your tax return.
Without a valid Social Security number issued before the due date of your return, you cannot claim your child as a dependent. This means you won’t be able to access essential tax credits designed to ease the financial burden of raising a child.
Why It’s Important
Each qualifying child under the age of 17 may make you eligible for the Child Tax Credit. For tax year 2023, this credit is worth up to $2,000 per qualifying child. In many cases, a portion of this credit—up to $1,600—can be refundable. That means families who owe little or nothing in taxes may still receive a check back from the government.
None of these benefits are accessible without your child’s Social Security number. If the number is missing, incorrect, or not issued in time, the IRS will disallow the claim entirely.
When and How to Apply
The best time to apply for your child’s Social Security number is at the hospital, when you’re completing birth certificate paperwork. Most hospitals will allow you to submit the Social Security application form at the same time. This is the fastest and most seamless way to get the number.
If you didn’t apply at the hospital or had a home birth, you can still apply through a Social Security office. You’ll need to bring:
- Your child’s original birth certificate or other proof of birth
- Proof of your identity (such as a government-issued photo ID)
- Form SS-5, the Application for a Social Security Card
Processing times vary, and during peak periods or staffing delays, it may take several weeks to receive the card. Waiting too long can create time pressure if you’re trying to file your return early.
Avoiding Errors on the Return
Even after receiving the Social Security number, accuracy is essential when completing your tax forms. Ensure that the name and number exactly match what appears on the card. The IRS system will flag mismatches and can reject the return. Common errors include misspelled names, transposed digits, or mismatched birthdates.
Make it a habit to double-check this information every year. Children may have multiple surnames, name changes after birth, or inconsistent use of middle names, which can lead to discrepancies if not corrected.
Real-World Example
Consider the case of a couple whose child was born in October. Believing they had ample time before the tax deadline, they delayed applying for the Social Security number until January. Due to processing delays, they didn’t receive the number until April 10—just days before the filing deadline. Their tax preparer submitted the return, but the form listed the wrong digit in the SSN field.
Because the number didn’t match IRS records, the claim for the Child Tax Credit was denied. They had to amend their return, which delayed their refund by more than 12 weeks. This scenario could have been avoided entirely with earlier planning and thorough verification.
Mistake 2: Poor Recordkeeping for Childcare Expenses
After the newborn stage, many parents return to work and rely on some form of paid childcare. Whether it’s full-time daycare, an after-school program, or a hired nanny, these services can add up to thousands of dollars annually. Fortunately, these costs may qualify for the Child and Dependent Care Tax Credit.
However, to claim the credit, accurate records are a must. Missing provider information, payment details, or identification numbers can invalidate your claim. Parents who don’t keep track of these details often find themselves unable to prove the expenses, especially if audited.
Overview of the Credit
This tax credit is available for working parents who pay someone to care for a dependent under the age of 13 while they are at work or actively seeking work. The percentage of expenses that can be claimed ranges from 20 to 35 percent, depending on your income.
The maximum amount of expenses you can claim is:
- $3,000 for one qualifying dependent
- $6,000 for two or more dependents
This means the maximum potential credit is $1,050 for one child or $2,100 for two or more.
What Expenses Count
Eligible childcare services include:
- Licensed daycare centers
- In-home nannies and babysitters
- Preschool tuition (for the care portion)
- Before- and after-school programs
- Day camps during the summer (excluding overnight camps)
You cannot claim payments made to:
- A spouse
- A parent of the child (if the child is under 13)
- Any relative under age 19
If your child attends a facility that combines education with care, only the portion of expenses related to care qualifies.
What You Need to Document
To successfully claim the credit, you must list the provider’s name, address, and taxpayer identification number (either an SSN or EIN). Additionally, you should maintain proof of payment, including:
- Canceled checks
- Credit card statements
- Receipts
- Signed contracts or agreements
Without these, the IRS may challenge your claim. The agency often requires substantiation if the return is selected for review. A helpful tool is Form W-10, which is used to collect the provider’s identifying information. Have your childcare provider complete this form annually and keep it in your records.
Coordinating With Employer Benefits
Many employers offer a dependent care flexible spending account (FSA), allowing you to set aside up to $5,000 in pre-tax dollars for eligible expenses. While this benefit is valuable, you cannot claim the tax credit for the same expenses covered by your FSA.
If you use both the FSA and the tax credit, coordination is essential. For example, if you have $6,000 in total expenses and used $5,000 from an FSA, you can only claim the remaining $1,000 through the tax credit. It’s important to review your year-end pay stub or W-2 form to confirm how much you contributed to the dependent care FSA and ensure you are not duplicating benefits.
Tracking Expenses Throughout the Year
Waiting until tax season to gather documents can be stressful and lead to missing information. A better strategy is to:
- Create a dedicated folder (physical or digital) for childcare expenses
- Save each monthly statement or invoice
- Record the provider’s full name, address, and ID number once per year
- Use a spreadsheet to track payments over time
Automated tools, such as expense tracking apps or budgeting software, can help streamline this process. Some even allow you to take photos of receipts and categorize expenses for easy retrieval later.
When Records Are Incomplete
In some cases, parents may have paid a family friend in cash, neglected to collect a receipt, or forgotten to document the provider’s ID number. These gaps can make claiming the credit nearly impossible.
If the provider is unwilling to supply documentation or an ID number, the IRS may disallow the expense. The burden of proof lies with the taxpayer, not the provider. Always insist on proper documentation at the time of payment, not months later.
Real-World Example
A single parent paid $500 per month for after-school care from January through December. Over the course of the year, that added up to $6,000 in qualifying expenses. Unfortunately, she had only a few canceled checks and no signed agreement or provider ID.
Although she was eligible for the full credit, her preparer advised that the claim might not survive an audit. She eventually tracked down her provider, but it took weeks and added stress. Had she gathered documentation from the start, she could have submitted her return with confidence and received a larger refund much sooner.
Mistake 3: Not Claiming Head of Household Status as a Single Parent
Filing status determines your standard deduction, eligibility for certain credits, and overall tax rate. For single parents, the difference between filing as single and filing as head of household can be significant. Yet many eligible taxpayers fail to claim this status, often out of confusion or a simple lack of awareness.
What Is the Head of Household Status?
Head of household is a special filing status available to unmarried taxpayers who have a qualifying dependent and who pay more than half the cost of maintaining a home. It offers two major financial advantages over filing as single:
- A higher standard deduction
- More favorable tax brackets
For tax year 2023, the standard deduction for single filers is $13,850. For those filing as head of household, it rises to $20,800. That’s nearly $7,000 of additional income that isn’t taxed, just by selecting the correct filing status. In addition to the larger deduction, head of household filers are taxed at lower rates for each income bracket. This can reduce your overall tax bill significantly.
Who Qualifies for Head of Household?
To qualify, you must meet several specific criteria:
- You are unmarried or considered unmarried on the last day of the tax year
- You paid more than half the cost of keeping up a home during the tax year
- A qualifying person, usually your child, lived with you for more than half the year
You’re considered unmarried if you’re single, legally separated, or lived apart from your spouse for the last six months of the year. Just being married and filing separately doesn’t qualify. The home must be your main residence and that of your child or dependent. Paying more than half the cost includes rent or mortgage, utilities, groceries, property taxes, and other essential expenses related to maintaining the household.
Common Errors That Disqualify Filers
Some parents miss this opportunity because they live with another adult, such as their own parent, and don’t realize that they must be financially responsible for more than half of the household’s costs. Others mistakenly claim head of household without meeting the living requirements, which can trigger an audit or penalty.
Another common error is assuming that shared custody automatically qualifies both parents to file as head of household. Only the parent who has the child for the majority of nights during the year can claim the child as a qualifying person for this status.
Real-World Example
Consider a single father named Michael. He lives with his five-year-old son and pays all household expenses. His income for the year is $42,000. If he files as single, his taxable income is calculated after the $13,850 standard deduction, resulting in $28,150 subject to tax.
If he instead files as head of household, his standard deduction jumps to $20,800, reducing his taxable income to $21,200. This puts him in a lower tax bracket and significantly reduces what he owes. The difference in taxable income alone is enough to impact eligibility for credits like the Earned Income Tax Credit and the Child Tax Credit, both of which phase out at certain income levels.
How to Claim It Properly
Be sure to select the correct filing status on your return. If using software or working with a tax preparer, answer all questions about your marital status, dependents, and household expenses carefully. Keep documentation that shows you meet the criteria, such as:
- Lease agreements or mortgage statements
- Utility bills in your name
- Grocery receipts and household budget records
- School records showing your child lives with you
Being able to prove your head of household status can prevent delays or rejections if your return is reviewed by the IRS.
Mistake 4: Overlooking the Earned Income Tax Credit
The Earned Income Tax Credit, or EITC, is one of the most valuable benefits in the tax code for working families. Yet each year, millions of eligible taxpayers either don’t claim it or claim it incorrectly.
The EITC is a refundable credit, meaning it can not only reduce your tax bill to zero, but it can also result in a refund, even if you didn’t owe any taxes. For low- and moderate-income families, it can make a substantial difference.
Who Qualifies for the EITC?
Eligibility for the EITC depends on three primary factors:
- Earned income and adjusted gross income (AGI)
- Filing status
- Number of qualifying children
Earned income includes wages, salaries, tips, and other income from employment or self-employment. Investment income and unemployment benefits do not count.
For tax year 2023, the income thresholds are as follows:
- No children: up to $17,640 (single), $24,210 (married filing jointly)
- One child: up to $46,560 (single), $53,120 (married filing jointly)
- Two children: up to $52,918 (single), $59,478 (married filing jointly)
- Three or more children: up to $56,838 (single), $63,398 (married filing jointly)
The maximum credit amounts range from about $600 for individuals with no children to over $7,000 for families with three or more children.
Importance of Qualifying Children
A qualifying child must meet several criteria:
- They must be your son, daughter, stepchild, foster child, sibling, or descendant of any of these
- They must be under age 19 (or 24 if a full-time student), or any age if permanently disabled
- They must live with you for more than half the year
- They cannot file a joint return unless only to claim a refund of withheld taxes
Each child you claim increases the value of the credit. However, the IRS will flag inconsistencies if two parents try to claim the same child. This often occurs in shared custody situations, and resolving the issue can delay refunds.
Documentation and Proof
To claim the EITC, you must file a federal tax return, even if you are not otherwise required to file. You must also include your qualifying children’s information, including correct names, birthdates, and Social Security numbers.
Keep copies of:
- Birth certificates
- School or medical records showing residence
- Proof of income such as W-2s or self-employment logs
- Any custodial agreements if your child splits time between households
These documents may be requested if your return is selected for verification.
Real-World Example
Sarah is a single mother of two children and works full-time as a dental assistant. Her annual income is $41,000. Because her income falls below the threshold for a family with two children, she qualifies for the Earned Income Tax Credit.
Based on her income and number of dependents, she is eligible for a credit of approximately $5,600. This credit not only wipes out her tax liability but also results in a refund of over $4,000. Without claiming the EITC, she would have missed out on thousands of dollars that could be used for rent, childcare, or education expenses.
Common Mistakes to Avoid
Some of the most frequent errors include:
- Using incorrect or outdated Social Security numbers for children
- Entering inaccurate income figures
- Failing to file a return because of low income and not realizing a refund is still possible
- Claiming a child who does not meet residency or relationship requirements
Each of these can lead to a denied credit or delay in processing. The IRS pays close attention to EITC claims, and improper filings can result in a ban from claiming the credit for up to 10 years.
Impact on Refunds and Financial Planning
Because the EITC is refundable, it can provide a financial cushion at a critical time of year. Many families use this refund to catch up on bills, pay for school supplies, or manage seasonal expenses. In some cases, it allows families to reduce their reliance on credit cards or payday loans.
The credit can also affect eligibility for other programs, such as subsidized housing or food assistance. While the EITC itself is not considered income for most federal benefit programs, the timing and amount of the refund can impact short-term budgeting. Planning ahead and ensuring your return is accurate can help you receive the full credit amount without unnecessary delays.
Mistake 5: Including Your Child’s Income on Your Return
When a child begins earning income, whether from a part-time job or investments, many parents are unsure how to report it. Some choose to include it on their own return for convenience, especially if the amounts are small. Others may ignore it altogether, assuming it’s too minor to matter.
While these decisions might seem harmless, mishandling a child’s income can lead to tax errors, missed credits, or complications with the IRS. Understanding when and how your child must file a return is essential to avoiding trouble at tax time.
When a Child Must File a Tax Return
Children, like adults, are subject to income thresholds that determine whether they must file a federal tax return. These thresholds differ based on whether the income is earned (from work) or unearned (from investments or interest).
For tax year 2023, a child must file a return if:
- They have earned income over $13,850
- They have unearned income over $1,250
- Their gross income is more than the larger of $1,250 or earned income plus $400 (up to the standard deduction)
Earned income includes wages from a job, self-employment income, and tips. Unearned income includes interest, dividends, capital gains, and distributions from trusts or custodial accounts.
Even if the income is below these thresholds, a child may still want to file a return to receive a refund of taxes withheld from a paycheck.
When Not to Include It on Your Return
Some parents mistakenly include their child’s earned income on their own tax return. This typically happens when the child receives a W-2 with modest earnings from a summer job or after-school work. While it may seem easier to handle the income this way, the IRS requires that the income be reported under the child’s name and taxpayer identification number.
Parents can still claim the child as a dependent if they meet the dependency requirements, but the child’s income remains separate. Including it on the parent’s return can trigger errors in the IRS system and may result in underreporting or double taxation.
The Kiddie Tax and Unearned Income
Unearned income introduces another layer of complexity due to the so-called kiddie tax rules. Under these rules, unearned income above a certain threshold is taxed at the parent’s marginal tax rate. This applies to:
- Children under age 18
- Children ages 18 to 24 who are full-time students and do not provide more than half of their own support
If a child’s unearned income exceeds $2,500 (for 2023), the excess is subject to the parent’s rate rather than the child’s. This was implemented to prevent parents from shifting investment income to their children to take advantage of lower tax brackets.
In such cases, parents may have the option to include the child’s unearned income on their own return using Form 8814. However, this should only be done when it results in a tax advantage and complies with filing rules. Consulting a tax professional or carefully using software guidance is often recommended in these situations.
Self-Employment and Side Income
If your child is earning money from babysitting, lawn care, online sales, or similar side gigs, this may be classified as self-employment income. If they earn more than $400 from self-employment, they are required to file a tax return and may owe self-employment tax, even if no income tax is due.
Many teens and young adults do not realize that they must track and report this income, especially when it’s paid in cash or through digital apps. Educating children early on about tax responsibility can help prevent future complications.
Real-World Example
A teenager named Grace works part-time at a local grocery store and earns $4,500 for the year. Her employer withholds federal income tax, and Grace qualifies for a refund. Her parents mistakenly include the W-2 income on their own return and claim the refund.
This leads to a mismatch with IRS records, as Grace’s Social Security number was reported to the IRS by the employer. The parents receive a notice, and the refund is delayed. Had Grace filed her own simple return using her W-2 and included her direct deposit details, she would have received her refund quickly and avoided confusion.
Mistake 6: Not Taking Advantage of Education Tax Benefits
As children transition from high school to college or vocational school, education costs begin to climb rapidly. Fortunately, several tax benefits are available to help families manage these expenses.
Yet every year, many parents miss out simply because they are unaware of the credits or do not claim them correctly. Understanding the options available can result in significant savings, whether your child is just starting college or continuing postgraduate studies.
American Opportunity Tax Credit
The American Opportunity Tax Credit is one of the most generous education-related tax benefits available. It offers up to $2,500 per eligible student per year for the first four years of post-secondary education.
The credit applies to qualified education expenses, including:
- Tuition and fees
- Course-related books, supplies, and equipment
Room and board, transportation, and medical expenses do not qualify. The student must be enrolled at least half-time and pursuing a degree or recognized credential.
The credit is calculated as:
- 100 percent of the first $2,000 of qualified expenses
- 25 percent of the next $2,000
Up to 40 percent of the credit is refundable, meaning it can result in a refund even if no tax is owed. To claim the credit, you must receive a Form 1098-T from the educational institution and complete Form 8863 with your tax return.
Lifetime Learning Credit
The Lifetime Learning Credit is another valuable tax benefit, offering up to $2,000 per return for qualified education expenses. Unlike the American Opportunity Credit, it has no limit on the number of years it can be claimed. It is available for undergraduate, graduate, and professional courses, and students do not need to be enrolled at least half-time.
The credit is calculated as 20 percent of the first $10,000 in qualified expenses. It is nonrefundable, which means it can reduce your tax bill but will not result in a refund. Income limits apply to both credits, and taxpayers cannot claim both credits for the same student in the same year. Choosing the right one depends on the student’s education level, enrollment status, and family income.
529 Plans and Education Savings Accounts
Tax-advantaged savings plans, such as 529 plans and Coverdell Education Savings Accounts, allow families to set aside funds for future education costs. Earnings in these accounts grow tax-free, and withdrawals are also tax-free when used for qualified expenses.
Qualified expenses include:
- Tuition and fees
- Books, supplies, and equipment
- Room and board for students enrolled at least half-time
Some 529 plans also allow limited withdrawals for K-12 expenses, such as private school tuition, subject to state-specific rules.
Contributions to these accounts are not deductible on your federal return, but some states offer tax deductions or credits for contributions to state-sponsored plans. Tracking contributions and withdrawals throughout the year is essential for accurate reporting.
Student Loan Interest Deduction
If you or your child are repaying student loans, you may be eligible to deduct up to $2,500 in interest paid on those loans. This deduction is taken above the line, meaning you don’t need to itemize deductions to claim it.
Eligibility depends on:
- The taxpayer being legally obligated to repay the loan
- The student being enrolled at least half-time when the loan was taken
- The loan being used for qualified education expenses
Income limits apply and begin to phase out at certain thresholds. Parents who co-signed loans for their children may be eligible if they are the ones making payments.
Common Mistakes in Claiming Education Credits
The most frequent errors in claiming education-related tax breaks include:
- Claiming the same expenses for multiple credits
- Not coordinating with 529 plan withdrawals
- Forgetting to include Form 1098-T information
- Claiming credits for non-eligible students or institutions
The IRS requires that students attend an eligible educational institution to qualify for most credits. These include most accredited colleges and universities, but not all foreign institutions or unaccredited online programs.
It’s also important to ensure that the Social Security number on the tax return matches the number reported by the school. Inconsistencies can delay or deny credits.
Real-World Example
Lena is a parent of a college freshman. She pays $4,500 in tuition and another $1,000 for textbooks. She also contributes $2,000 to her daughter’s 529 plan, which her daughter later uses to pay for housing.
Lena mistakenly claims the American Opportunity Tax Credit on the full $5,500 in education costs, including the amount paid with 529 funds. The IRS flags the return, as she has essentially double-counted the expense. She must repay part of the credit and may be assessed penalties. Had she properly coordinated the credit and the 529 distribution, she could have maximized the benefit without overlap.
Conclusion
Navigating taxes as a parent involves more than simply claiming a few credits; it requires a full understanding of the responsibilities and opportunities that come with raising children. From securing a Social Security number for a newborn to managing childcare records, selecting the correct filing status, claiming applicable credits like the Earned Income Tax Credit, accurately reporting a child’s income, and using education-related tax benefits, each decision can have a significant impact on your overall tax outcome.
The most common mistakes parents make such as missing out on key credits or failing to maintain proper documentation can lead to higher tax bills, delayed refunds, or even audit issues. However, these errors are largely preventable with careful planning, timely filing, and good recordkeeping. Staying informed about the tax rules that apply to families and organizing your financial records throughout the year will allow you to take full advantage of available tax breaks. Ultimately, managing your taxes with the same attention and care you give to your parenting responsibilities can lead to long-term financial benefits for you and your family.