Because becoming a parent affects every area of your life, it’s natural to have questions about the path ahead. This is especially true when it comes to your finances.

Don’t wait until your baby arrives to get answers. Find them in the FAQs below.

• Does it make sense financially for both me and my spouse to work after our child is born?
• When do I have to apply for a Social Security number for my newborn?
• Who should I name as guardian of my children in case my spouse and I should die at the same time?
• My employer says that after my child is born, I have to come back to work in six weeks. But doesn't the law say that I'm entitled to three months of leave?
• What is the difference between the child tax credit and the child and dependent care tax credit?
• Can I take the tax credit for childcare?
• How do I find quality childcare?
• Should I buy Life Insurance on my child?
  
  

Following the birth of your child, you may feel that both you and your spouse need to work to meet household expenses and maintain your current lifestyle. However, you may discover that one of you can stay home without seriously affecting your net income. Though you would have to do without a second income, you need to factor in what you'd save:

• Child-care costs: The cost per child for a day-care facility, nursery school, or nanny
• Commuting costs: Gasoline, wear and tear on your car, tolls, and parking
• Clothing: Work clothes and dry cleaning
• Restaurant and take-out food: Prepared dinners you purchase because you have no time to cook
• Lunches out: You have more time to prepare your own
• House cleaning and gardening: Hired help to clean the house and mow the lawn
• Taxes: With only one salary, you may move into a lower tax bracket

Now, consider the adverse effects of becoming a single-income household. The most obvious, of course, is a reduced family income. You should also consider what effect a leave of absence will have on the stay-at-home spouse's career and your family's retirement plans. You may both be at a point in your careers where you are earning high salaries. Leaving your job now may mean having to start over lower on the career ladder. And if one of you leaves work, you may miss the opportunity to fully fund your 401(k). Further, with only one income, you are more vulnerable in the event of an economic downturn. Finally, the stay-at-home spouse may lose the sense of accomplishment and community one gets from working outside the home.

You should balance all the issues, both pro and con. And remember, although it may make sense for both of you to continue working, some non-financial considerations, such as the opportunity to raise and supervise your child in your own home, may outweigh your financial concerns.

Copyright 2003 by Forefield Inc.

There's no time limit on applying for a Social Security number for your newborn. However, you may want to do it right away, because you're required to include a child's Social Security number on your tax return to claim that child as a dependent.

There are two ways to apply for a Social Security number for your newborn. The first is to apply at the hospital when the baby is born. A doctor or hospital representative will ask for information to complete your baby's birth certificate. Ask him or her to have your state's vital statistics office share this information with the Social Security Administration. You'll need to provide the Social Security number for each parent, although the application can proceed even if one parent's number is unknown or not available. Your baby's card will be mailed to you within a few weeks.

If you do not apply for the Social Security card at the hospital, you can apply for the baby's number at a Social Security Administration office. You'll need to fill out an application (Form SS-5). Generally, you'll need to do the following:

• Provide both parents' Social Security numbers
• Show evidence of your child's age (the birth certificate), identity (a hospital record other than the birth certificate), and citizenship (the birth certificate)
• Show evidence of your identity (a driver's license or passport)

To obtain a copy of Form SS-5, access the Social Security Administration website or call toll free at (800) 772-1213 to request one. Mail or hand-deliver the completed application to your local Social Security Administration office.

Copyright 2003 by Forefield Inc.

This is an extremely important question. After all, what can be more important than choosing a surrogate parent for your minor children? This process takes careful consideration and may be emotionally difficult, so you'll want to take your time. The best guardian may not be the obvious choice.

You generally name a guardian in your will. Of course, spouses typically name each other as guardian first and then name an alternate guardian or guardians in case the spouse cannot serve for any reason, including death. Some parents nominate one guardian or guardians to care for the children and a different guardian to care for the children's assets and finances. All of this is perfectly permissible. The court will have final approval but generally gives your selection the highest regard.

Who is the right guardian for your children? It's customary for people to name parents, siblings, or best friends. You should select a responsible person with good character who shares your values and has the time and willingness to take on the job. When choosing a guardian, some of the things you may want to consider are:

• Who loves and cares about your children?
• Who do your children love and respect?
• Who do you trust?
• Who is financially and emotionally able to take on the responsibility?
• Who is willing to take on the responsibility?

Be sure to talk with any prospective guardian before you nominate that person. Impress upon him or her the gravity of your request. Discuss your wishes regarding how you want your children to be raised (e.g., you want them to have a religious upbringing, or you want them to go to college) and what financial resources will be available (e.g., you have life insurance). Give the potential guardian plenty of time to think over your request carefully.

Copyright 2003 by Forefield Inc.

The law you're referring to is known as the Family and Medical Leave Act (FMLA). It entitles you to take up to 12 weeks of unpaid leave to care for your new child, but only if you work for a covered employer and meet certain eligibility criteria. Under this law, while you're on leave, your employer-sponsored health insurance benefits are protected, and your employer must return you to the same job or a similar job when you come back to work.

You may be covered under the FMLA if:

• You work for a private company that has 50 or more employees, or you work for a public school or agency that has less than 50 employees, and;
• You have worked at least 12 months (not necessarily consecutively) for that employer, and you have worked at least 1,250 hours during the 12 months immediately preceding your FMLA leave start date.

Even if you are covered by the FMLA, your employer can require you to use any vacation days, sick days, or personal days you've accumulated in place of unpaid leave time. For instance, if you've accumulated two weeks of vacation time, your employer can ask you to use those weeks first, before giving you an additional 10 weeks of unpaid leave.

You're also required to give your employer at least 30 days' notice of your need for leave, or as much notice as possible, depending on the circumstances.

You should also check the rules of your state, because some states have their own parental leave rules and may pay disability benefits to new mothers. However, if you're not covered by any law, there's not much you can do. Unless you can negotiate more leave time with your employer, you'll either have to go back to work after six weeks or face losing your job.

Copyright 2003 by Forefield Inc.

These credits are quite different. First, the child tax credit. The purpose of this credit is simply to provide tax relief for parents, working or not, who have qualifying children under the age of 17. A qualifying child may be a dependent child, stepchild, adopted child, sibling, or stepsibling (or descendant of these individuals), or an eligible foster child. The child must be a U.S. citizen or resident and must live with you for over half the year.

If you're eligible, you may be able to take a credit on your federal income tax return of up to $1,000 per child. The child tax credit begins to phase out if your modified adjusted gross income (MAGI) exceeds a certain level.

The other credit—the child and dependent care tax credit—offers relief to working people who must pay someone to care for their children or other dependents. You may qualify for a tax credit equal to 20 to 35 percent of expenses incurred when someone cares for your dependent child (under age 13), your disabled spouse, or your disabled dependent so that you (and your spouse, if married) may work or look for work. The work-related expenses you can use when figuring the credit are limited to $3,000 for one qualifying individual, and $6,000 for more than one qualifying individual.

For married persons to qualify for the credit, both spouses must work outside the home, or one must work outside the home while the other is a full-time student, is disabled, or is looking for work (provided that the spouse looking for work has earnings during the year). Married couples must also file a joint income tax return. The credit is also available if you're a single parent or a divorced custodial parent. For more information, consult a tax professional.

For additional details, consult a tax professional.

Copyright 2003 by Forefield Inc.

The child and dependent care credit is a tax credit for up to 35 percent of certain expenses you paid to provide care for your dependent child, your disabled spouse, or a disabled dependent while you worked or looked for work. To be eligible for the credit, you must care for a qualifying person, incur work-related expenses, and have earned income.

A qualifying person is:

• Your dependent who was under the age of 13 when the care was provided and for whom you can claim an exemption, or
• Your dependent who was physically or mentally unable to care for himself or herself and for whom you can claim an exemption (or for whom you could have claimed an exemption but for the income test), or
• Your spouse who is physically or mentally unable to care for himself or herself, or
• In certain cases, a dependent claimed by a divorced spouse

Child and dependent care expenses must be work related to qualify for the credit. That is, the expenses must allow you to work or look for work. If you are married, you must file a joint tax return and both you and your spouse must generally work or look for work. (Your spouse is treated as working during any month he or she is employed, or is a full-time student, or is physically or mentally unable to care for himself or herself.)

Your child and dependent care credit is a percentage of a portion of your work-related expenses. The qualifying expenses on which the tax credit is based are limited to $3,000 for one qualifying dependent, and $6,000 for more than one qualifying individual. The percentage used in calculating the credit is gradually reduced as adjusted gross income (AGI) exceeds $15,000. If your AGI exceeds $43,000, your credit is limited to the minimum allowed by this law--20 percent of qualifying work-related expenses.

Copyright 2003 by Forefield Inc.

Whether you're looking for a nanny, a family day-care provider, or a child-care center, you'll want to make sure that your child will be safe and happy in his or her day-care setting.

Start by asking your friends, family members, and neighbors for referrals to child-care providers that they've been happy with. You can also call Child Care Aware at (800) 424-2246 to find the child-care resource and referral program nearest you.

When you call your local program, you'll be referred to child-care providers in your area and given information about selecting a child-care provider, including information about how your state regulates childcare.

Once you've compiled a list of providers, visit each one that seems suitable. If possible, bring your child so that you can see how the provider interacts with your child. During the visit, look for signs that the home is clean and safe, and that the children who stay there seem happy.

Finally, ask the provider for references from other parents, and call them. It's also essential to check state records to see if any complaints have been lodged against the provider.

If you are like many working people with children, you commonly pay for your child-care costs out of current cash flow, including income from salaries, tips, investments, and other sources. Childcare is part of your regular monthly expenses and generally cannot be avoided. However, some methods are available to you that may help save on taxes and reduce costs. For instance, your employer may include a designated flexible spending account (FSA) in its employee benefits package. You contribute pretax dollars, deducted from your paycheck, to a fund earmarked for dependent care expenses. You pay your day-care bills and are later reimbursed out of your tax-free FSA.

You and your spouse can more easily meet your child-care expenses by reducing costs. Some child-care providers allow parents to volunteer their services in exchange for a lower bill. Or, if possible, you and your spouse can work alternate work schedules so that at least one of you is home with your child for all or part of the day. This will allow you to pay for part-time day care or to fully avoid such costs.

Other alternatives include job sharing, where you and another person fill one full-time job, allowing more free time to spend at home; telecommuting, where you work some days at home; or a compressed work week, where you work four 10-hour shifts during the week and spend the fifth day at home. You might also consider working part-time for a few years until your child is in school.

If you work part-time, you could try to create a child-care swap with other neighbors who work part-time. In addition, some companies provide up to three months of paid parental leave time, so take full advantage if this is available to you.

Since the main purpose of life insurance is to protect against financial loss when someone dies, it's often better to wait until your child reaches adulthood to purchase life insurance. Although your child's death would be a tragedy, it would probably not affect your family much financially unless he or she was earning a substantial amount of income for the family.

However, there are a few reasons why you might purchase life insurance on your child. For instance, you might buy life insurance on your young child so you can take advantage of the rates, which are lower for healthy children than for adults. Your employer may even offer inexpensive term coverage for dependents.

Purchasing a policy while your child is healthy can also guarantee that your child will be protected throughout adulthood, even if he or she becomes ill, works in a hazardous occupation, engages in dangerous activities, or becomes uninsurable for other reasons.

Some parents also buy term insurance policies on their children to cover the time period when they are paying for their children to attend college or graduate school. If a child dies during this period, the death benefit can be used to help pay off college debt.

To find out if buying life insurance for your child makes sense in your situation, talk to a trusted insurance advisor.

Copyright 2003 by Forefield Inc.