Who says Uncle Sam doesn't give presents? Some birthdays come with an extra surprise - a tax break.

Baby Bonanza

Add to the family? Add an exemption. A dependency exemption is available the year your child is born if you provide your little bundle's Social Security number. Your children may continue to qualify as dependents until they reach age 19 (age 24 for full-time students). In 2009, the exemption amount is $3,650. (The exemption is phased out above certain income levels.)

You may also qualify for a child tax credit for each child under age 17. The child tax credit is $1,000 per qualified child in 2009. Again, the credit is phased out above certain income amounts.

Kiddie Care

Working parents of children under age 13 may be able to get a break on day-care expenses. The child care tax credit is 20% to 35% of the amount spent on day care, depending on income. The maximum amount of expenses eligible for the credit is $3,000 for one child, $6,000 for two or more.

Teen Time

When teens reach age 19 (24 if a full time student), they get their own tax break. Before that age, unearned income over a certain amount ($1,800 in 2009) is taxed at their parents' highest marginal rate. At age 18, this "kiddie tax" ends and teens are taxed at their own rate (10% on taxable income up to $8,350 in 2009) on earned and unearned income.

If you're a sole proprietor in a trade or business and your under-19-year-old works for you, you both get breaks. The teen's wages aren't subject to FICA (Medicare and Social Security) tax.

Over Thirty

Some birthdays are tax warnings. At age 30, the beneficiary of a Coverdell Education Savings Account (ESA) generally will receive a distribution of any remaining funds within 30 days. Income tax will be due on the earnings and a 10% penalty tax as well. But you won't have to worry about the 10% penalty tax on early withdrawals from tax-deferred retirement accounts and IRAs once you reach age 591/2.

The "Golden" Years

You can celebrate your 65th birthday with an additional standard deduction. But, after you reach age 701/2, Uncle Sam wants you to start making up for all those years of tax deferral in your traditional IRAs and, in most cases, your retirement plan. That's when required minimum distributions start - and they're taxable income.

MFN-1009-6355

Article is for educational purposes only and is not intended to provide specific tax or legal advice. For answers to tax questions, please see your tax professional. For legal questions, consult an attorney.

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