Can I deduct baby formula on my taxes?

October, 13 2020 by Robin Scott-Hutchens, EA

The cost of baby formula for your own infant is generally not considered something you can write off on your taxes. This is along the same lines of not being able to write off your own grocery purchases or that delicious, drive-thru chicken sandwich. Those items are considered personal, nondeductible expenses.

As with all things taxes, there are exceptions when it comes to claiming baby formula. The cost of baby formula might be deductible in some very specific, finite cases. If you feel yours is one of these rare situations, please talk to a tax professional first. Also, if you are running a childcare or daycare type facility, you may be able to deduct the cost. In such a case, the cost of the formula you are providing to those left in your care may be a deductible business expense.

But let’s say you are not taking care of the neighbors’ kids. You simply have your own little bundle of joy who you are focused on right now. There’s so much stuff that goes along with having a baby. Is none of it worthy of a write-off? What is a new parent to do? There is an entire other human being in the house now, for crying out loud!

 

Tax Benefits a New Baby Can Bring

Let’s look at what tax benefits a new baby can bring. Remember that some of these will have limitations based on your income level, the child’s age, and other factors.

• Head of Household filing status: You may be able to change your filing status. If prior to having a baby your filing status was Single, you may now be eligible to file as Head of Household. Providing you meet all the qualifications for this filing status, your standard deduction will increase from $12,400 to $18,650 in 2020. Be aware that if you itemize your deductions on Schedule A already, this may or may not have any effect on your return.
• Child Tax Credit / Additional Child Tax Credit: If your baby has received a Social Security Number that is valid for employment in the United States, you may qualify for the Child Tax Credit. Don’t let the wording “valid for employment” scare you into thinking you need to get junior a job at the ripe old age of 0. This just indicates that your mini me is a U.S. Citizen or has been lawfully admitted to the United States on a permanent basis. But let’s look at the Child Tax Credit itself. This credit can be worth up to $2,000 per child in 2020 and is designed to reduce any tax liability that may have been calculated on your taxable income. If your tax liability is less than $2,000, or even zero, you may still have the option to claim the Additional Child Tax Credit. This credit can be worth up to $1,400 per child if you have earned income of at least $2,500. The Additional Child Tax Credit is what is called a refundable credit. Refundable means it can potentially increase the amount of refund you receive.
• Child and Dependent Care Credit: As much as you want to spend your entire day hanging out with your little darling, eventually you may have to return to work. If you pay for qualified childcare expenses in order to work, there is yet another credit for which you may be eligible. The Child and Dependent Care Credit can also be used to reduce any income tax liability you have. You can claim up to $3,000 of expenses per child under the age of 13 or up to $6,000 for two or more children. The credit is 20% - 35% of the expenses based on your adjusted gross income. Be advised that if you participate in a dependent care benefit plan with your employer, this can affect how much you can claim. Same goes if you have a spouse and they participate in a program. There are also qualifications for the child and the type of expenses paid. Can you pay your 16-year-old to look after your infant and claim those expenses? No. But can you pay grandma and claim those? Yes… if grandma is willing to have her social security number listed on your tax return as the recipient of the payments. There are other tests for qualifying expenses also, so make sure you consult a tax professional or at least read up on IRS Publication 503, Child and Dependent Care Expenses.
• Earned Income Credit: This credit does not necessarily require a child to be claimed, but now that you have a child, you may now find yourself eligible or receive an additional amount if you already qualify. Be advised that if you were eligible for Earned Income Credit prior to having your baby, now having said baby could possibly change the amount of credit and the income phase-in and phase-out ranges that apply to you. This credit is a refundable credit. Any amount not used to offset individual taxes owed can be added to the refund amount. The amount of your earned income, filing status and number of qualifying children you are claiming all influence whether you are eligible for Earned Income Credit and, if so, how much you will receive.

Adoption Credit May Be Available

As an additional note, if the new addition to your family came by way of adoption, there is an Adoption Expense Credit that you may be eligible to claim. This credit can be up to $14,300 per child in 2020, but this is not a refundable credit. However, any unused portion of this credit can be carried forward and used on future tax returns for up to five years or until it is used up, whichever comes first. Rules and qualifications around adoption expenses and this credit can be complex. Please consult with your tax professional if you have questions on how and if you qualify.

 

Possible State-level Credits

Finally, there may also be state-level credits or deductions available to you when you bring a new baby home. These will vary from state to state. If you are using a tax professional or tax preparation software to complete your 2020 tax return, take your time to answer and review all information about your new family member. This will go a long way to make sure you get every available tax benefit for your new bundle of joy.