Baby Needs a Number

• For you to take advantage of child-related tax breaks, your baby must have a Social Security number. In most cases, you can apply for a Social Security number right at the hospital, at the same time you fill out the paperwork for your baby's birth certificate. If you didn't do it then, you'll have to go to a Social Security office in person. See the link in the Resources section for instructions from the Social Security Administration.
  
  

Claiming a Dependent

• When you file your taxes, you must list all the people you are claiming as dependents -- children or other people in your household whom you support financially. That includes your new baby. Each dependent must by identified by name and Social Security number, and you must identify that person's relationship to you.
  
  

Exemptions

• You are allowed to claim exemptions for yourself, your spouse if you're filing your taxes jointly, and each one of your dependents. An exemption is a dollar amount that you can deduct from your taxable income, thus reducing your tax bill. As of the 2010 tax year, the exemption was $3,650 per person. The exemption amount rises with inflation.
  
  

Tax Credits

• In most cases, having a baby entitles you to claim the Child Tax Credit. This credit allows you to reduce your tax bill -- not just your taxable income, but the actual amount you owe in taxes -- by as much as $1,000 per child. This credit begins to phase out at higher incomes. As of 2010, the phase-out began at $75,000 for single filers and $110,000 for married couples. If your income was above $95,000 for a single person or $130,000 for a married couple, you couldn't take the credit at all. Also, if you put your new baby in child care so that you can work -- or look for work -- you may also be eligible for the Child and Dependent Care Expenses Credit. This credit can reduce your tax bill by as much as $1,050 for one child, $2,100 for two or more. There's no income limit on this credit.
  
  

Medical Expenses

• Unreimbursed medical expenses from having a baby are deductible from your taxable income, to a certain extent. If you itemize your deductions, you can deduct all medical and dental expenses in excess of 7.5 percent of your income. Say your income for the year was $40,000; taking 7.5 percent of that makes $3,000. Now say that you paid $4,500 out of pocket for baby-related medical expenses and had $500 in other medical and dental expenses. That adds up to $5,000. So you can claim a deduction for $2,000. Remember to include not only the hospital costs of having the baby, but all doctor visits and tests leading up to the birth. However, you can't include any amounts paid by or reimbursed by your insurance company.