The child credit has long been a fan favorite of taxpayers for years. Now that the Tax Cuts and Jobs Act passed, it comes with added benefits — at least for a while. The following are key details that every family should know:
Amount and Limitations
For the 2017 tax year, the child credit may help reduce federal income tax liability by up to $1,000 for each qualifying child under age 17.
However, the credit is subject to income limitations that may reduce or even eliminate eligibility for it depending on your filing status and modified adjusted gross income (MAGI). For 2017, the limits are $110,000 for married couples filing jointly, and $55,000 for married taxpayers filing separately. (Singles, heads of households, and qualifying widows and widowers are limited to $75,000 in MAGI.)
Under the TCJA, the credit will double to $2,000 per child under age 17 starting in 2018. The maximum amount refundable (because a taxpayer’s credits exceed his or her tax liability) will be limited to $1,400 per child.
The TCJA also makes the child credit available to more families than in the past. That’s because, beginning in 2018, the credit won’t begin to phase out until MAGI exceeds $400,000 for married couples or $200,000 for all other filers, compared with the 2017 phaseouts of $110,000 and $75,000. The phaseout won’t be indexed for inflation; meaning the credit will lose value over time.
In addition starting in 2018, the TCJA includes a $500 nonrefundable credit for qualifying dependents other than qualifying children (for example, a taxpayer’s parent, sibling, niece or nephew, or aunt or uncle). Importantly, these provisions expire after 2025.
Along with the income limitations, there are other requirements to qualify to claim the child credit. As you might have noticed, a qualifying child must be under the age of 17 at the end of the tax year in question. The child also must be a U.S. citizen, national or resident alien, and a dependent claimed on the parents’ federal tax return who’s their own legal son, daughter, stepchild, foster child or adoptee. A qualifying child may also include a grandchild, niece or nephew.
As a child gets older, other circumstances may affect a family’s ability to claim the credit. For instance, the child needs to have lived with his or her parents for more than half of the tax year.
Tax credits can serve as powerful tools to help you manage your household tax liability. With the Tax Cut and Jobs Act, many individual provisions have changed. If you may qualify for the child credit in the years ahead or interested in the comparison of changes, please contact our firm to discuss how to properly claim these benefits or view the individual provision changes in our Knowledge Institute.
Tene Thomas is a licensed CPA with more than 20 years of technical experience in tax compliance and accounting services. As partner of the tax and accounting practice, Tene serves a myriad of industries including entertainment, professional services, health care, real estate, and investment advisory services. Contact us for more information on the child tax credit or the individual provisions of the Tax Cut and Jobs Act to help prepare for next year’s season.