When your baby is born, getting a Social Security card may hardly seem a priority but having a number immediately for your child could save your family sizable tax dollars. You have to have it later to be able to claim your child as a tax exemption, but there are good reasons to get the card immediately.
Many new babies receive gifts of money, and other gifts of money are likely to continue throughout childhood. Typically, you feel that this money should be put into savings, such as bank accounts, savings bonds, or stocks. Such investments require a Social Security number. Parents usually open accounts under their names and Social Security numbers, even though in their minds the money clearly belongs to the child. The trouble is that at the year's end the bank reports the interest income as belonging to you, and you must report and pay taxes on it.
If your child's Social Security number appears on his account, the income is reported to the IRS as belonging to your child. A minor may receive interest and dividend income up to $1,000, plus another $100 in dividends, per year without owing any taxes (and you do not lose the child as a tax exemption).
To take a simple example, suppose your child receives cash presents at birth of $500, and the money earns an average of 12% annually over the next 15 years. At the end of the 15 years the principal will have earned a total of $2,200 in interest. If the account has your Social Security number, and your family earns about $25,000 a year, you will have paid about $550 in income taxes on that $2,200. If the account lists the child's Social Security number, your family will have paid no taxes on the interest income.
It is simplest to open a custodial account -- for example: "Mrs. John Adams, as custodian for John Adams, Jr., under the Uniform Gift to Minors Act." The key point is that the Social Security number on the account will be the child's. (Incidentally, as the child's property the money will be protected from your creditors.)
Getting a Social Security number for your baby is fairly routine and can be done anytime after its birth. Go to your local Social Security office (look under U. S. Government in the phone book). Show the baby's birth certificate and proof of your identity (a birth certificate, driver's license, or work badge), and within 6 to 8 weeks your baby will have a Social Security card and number. If it is difficult for you to go in person, telephone to explain and say that you want a card for a new baby. Often special arrangements can be made. And if you are close to April 15th, they may be able to speed up the card issuance for you, but no promises, as it may not be possible.
If you do not have the Social Security number by April 15th, there are still two ways you can claim the exemption. You can file for an automatic 60 day extension, pay the amount due, and then file the full return listing the number when it comes in. Or you can file without the exemption, and file an amended return claiming the extra exemption and giving the number when you have the number. Any return can be amended within three years of filing. But these methods only help with the exemption -- it is too late to do anything about income that has already been taxed to you instead of the child (but of course you can transfer it to an account in the child's name for future years) -- so there is good reason to get the Social Security card as soon as possible after the birth.
About the Author Adam Starchild writes extensively on taxes, family finances, and home businesses. He is the author of over 20 books on these subjects. The above article is reprinted with permission from his book How to Save on Your Taxes Without Cheating.
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