The baby wings of hospitals are getting really busy now, more than any other time of the year. And it’s all Uncle Sam’s fault, because having a baby any time before 11:59pm on December 31st can mean over a thousand dollars in child tax breaks. In fact, if you have an income low enough to qualify for the earned income credit, the difference can amount to more than $3,000.
The New York Times explores this phenomenon that is making December 28th the most popular birth date of the year. It’s like something out of Freakonomics, which explored curious ways that people respond to financial incentives.
By my calculations, about 5,000 babies, of the 70,000 or so who would otherwise be born during the first week in January, may have their arrival dates accelerated partly for tax reasons. When Mr. Chandra interviewed one mother in central Kentucky, she told him her doctor encouraged her to schedule a late-December birth well in advance, to be sure she got a delivery room. Anecdotes aside, Mr. Chandra thinks my estimate of 5,000 is conservative, based on his own more sophisticated statistical analysis.
The article goes on to talk about the potential health concerns of timing births in this way. I’m no doctor, but I would think common sense would suggest that that pushing things forward by more than a couple weeks just for the money might be a bad idea. Induced births and C-sections are also more expensive than natural births, which knocks up the cost of healthcare in general if not directly to the parents. I guess I could see this being something to consider if the due date was January 1st or something, but otherwise it’s something I’ve never even thought about!
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This is a good way to show you are ready to be a parent. Lets worry more about the tax break than the health of the child. I always thought this was something people joked about, not something that was pursued. Personally, if you want to look at this in a strictly financial standpoint, I don’t think the risk of a couple weeks in NICU is worth the tax savings.
Thanks for the interesting post. I’m actually due on Jan 10, and I try to be good-natured about people suggesting that I get my doctor to deliver the baby before Jan 1 (she probably wouldn’t anyways), but I find the suggestion pretty stupid. Induction is actually more painful, and frankly the health of our baby is much more important that my taxes!
I’m full term right now but I’m waiting for things to start naturally. Inductions are not fun from what I hear. The tax break would be nice but it doesn’t mean enough to start things early.
wouldn’t having the baby at the end of the year also cause you to lose an extra year of them being on your healthcare or being taken as a deduction in some other way on the tail end? In the end, it’s probably a wash.
In all fairness, in my experience being pregnant twice, doctors rather plan a birth than wait for it to happen. I imagine it’s a lot more like “we’re going to induce you or do a c-section anyway, so let’s not make it the 29th instead of the 1st.” It’s more a symptom of the problem than people actually pushing it up for the tax break only. A big percentage of moms, these days, are given an option when to have their baby.
With both pregnancies my doctors really pressured me to induce early. For no real reason I could see.
Jonathan,
Good timing on this one!
My wife is 39 weeks pregnant, and we are just waiting (and hoping) that that baby comes in the next week (both for her sake because she is tired of being pregnant, and so we can qualify for the tax break). I calculated that for me it is a difference of about $1500.
@mimi – you are correct that having the tax break this year means that we would have the tax break for one less year in the future, but I expect that I will need the money a lot more right now than I will in 18 years (or whenever the child ceases to be a dependent). Another way of looking at it is that the tax break now compounded for 18 years will be much greater than whatever the tax break will be 18 years from now, even if the government keeps the tax code the same and still allows that deduction/credit (which I doubt because I am always pessimistic when it comes to government taxation).
Oh yeah, this happens. My wife was due in late January last year and I tried to convince the doctor to have the c-section on Dec 31. The Doc said she gets that a lot and that Dec was too early for our baby. 🙂
Induced births and C-sections are also more expensive than natural births, which knocks up
Jonathan did you mean to put that pun in there or was that a Freudian slip? Do you have something to share? Are you planning something and doing some back calculating? You need to plan that romantic getaway weekend with your wife for the weekend of March 22 or 29 in 2008. Have fun! 😉
Or people might want to have that first “new years baby” that the news stations and newspapers always had a field day with back home.
I’m 12 days away from my due date. My doctor will not induce early unless there is a medical reason. Though I usually agree with him, when I am this pregnant all I want is the baby out of me. Pardon the harshness, but more than a tax break, I want a break from being pregnant. The last few weeks are an emotional/physical marathon, that can only be understood when you are in the middle of it.
Of course I’ll take a healthy baby any day over an NICU baby or an unnecessary c-section, but still, if we could only guarantee my baby would be fine I would soooo jump on the induction band wagon.
Now if I could only get my doctor to agree….
My wife’s due Jan 4th, and her doctor plans to induce at that time, or any day my wife wishes… including today. The baby is already over 8 pounds, and my wife is quite petite. Were both hoping for the baby to come naturally this week. It will be tough for both of us to hold out past Jan 1st though.
Ted – More like March 2012 at the rate that I am maturing. 😛
I’m sure I would just do whatever the Dr. says. He/She knows each person’s situation best.
I had my second child in October and I would have received an Earned Income Credit ($2k+) this year… if I hadn’t exceeded the investment income limit of $2,900 by $200. Darn HSBC, ING, etc. I tried to plan it just right, but work got busy and I failed to track it. Also, I attempted to move my excess cash to TD-Amertrade (who has an extremely low return on their cash accounts) in order to reduce my income and they “rewarded” me by upgrading my account to Apex and giving me a higher rate of return. Ugh. I felt like Richard Pryor in “Brewster’s Millions”. I couldn’t lose money even when I tried. Oh, well
Tacky
We have an HSA health plan with a 4,800 deductible. Baby was born in early Feb, which effectively cost me 4,800×2, vs having him in the same cal year in which he was conceived. If we are in a simmilar insurance situation next round I will certaintly attempt to time accordingly.
Even if you never think about it, the financial incentive will subconsciously influence many people’s small decisions.
Over 350,000 people are born daily. If the 350,000 for January 1st are instead born on December 31st, that’s still 350,000 lives changed by this tax rule. Even if just 1% of those 350,000 are influenced in some way by taxes, that’s 3,500 people affected per year.
We must be very careful about our decisions.
Jonathan,
I know it may not be relavent to your blog, but can you shed some light on the school cut-off dates related to year-end births ?
Aren’t those kids losing an academic year ?
We did this. Wife was induced 9 days early with our 2nd kid. It worked out fine. Doc says he won’t usually induce unless it is is within 7 days of due date, but he made an exception for us as my sister was in town from the opposite coast for the holidays. And wife was walking around at 5 cm with 10 days to go. Of course, for the flip side, I have a friend who tried this (was actually induced just 1 day early) and she ended up having extremely hard labor and then they ended up doing a c-section. That baby was not ready to come out.
If you are considering a permanent method of birth control, it is financially a good thing to do this is in the same year you finish your family and have already met your deductible. Try to get the tubes tied after delivery. Some hospitals/doctors will no longer do this without having you come in 6 weeks or so later. I think it is because insurance pays them less if they do it directly after delivery. Otherwise, my vasectomy only cost us about $100.
My brother-in-law’s baby was due next week, but she was born (naturally, not induced or c-section) 10 days early. They are calling calling her “their little tax break.” Jokingly of course! 🙂
One of my coworkers and his wife scheduled a c-section for the 27th, but I think there were a lot of reasons for that – the holiday/vacation time, insurance, taxes, etc. They required a c-section anyway (I don’t remember the reason), so why not do it when convenient? I think it was only about 5 days before the anticipated due date anyway.
FYI to Jonathan, when the time does come, remember that Dr. does NOT know best. Many docs just go by the books, not the person. They get paid a lot more for a scheduled C-section than for a natural birth, and while they may say that’s not their motive, well, you look at the numbers and see who to believe.