This week’s blog focuses on one of our favorite changes in the Tax Cuts & Jobs Act (TCJA): Child Tax Credit (CTC).
It can be a confusing topic to figure out on your own. In addition to our blog posts, be sure to check out our social media accounts. On Thursdays, we specifically compare the past TCJA to the new one with #ThrowbackThursdays.
Basic Requirements on the Child Tax Credit for 2018
- Children must be under the age of 17
- Children must still be under the age of 17 at the end of the year
- In other words, if they turn 18 on January 1st, 2019, you qualify!
- No limit on how many kids you can claim
- 1,3, or 5 kids? It doesn’t matter!
- The CTC is a credit, not an adjustment to income
- Reduces your tax bill DOLLAR FOR DOLLAR, does not deduct from your taxable income.
Changes on the Child Tax Credit for 2018
- The CTC amount is now DOUBLED
- 2017: $1,000 per qualifying child
- 2018: 2,000 per qualify child
- The CTC is now REFUNDABLE
- Prior to this year, it was non-refundable.
- Up to $1,400 for each child, so if you have no tax liability at the end of the year, you can get back the extra $1,400
- Under the new CTC, MORE WILL QUALIFY
- The maximum single or joint income thresholds have significantly increased.
- Under the old law, phase outs began at $55,000 for single filers and $110,000 for joint filers.
- $500 nonrefundable credit for family members who depend on your for care
- Includes any children between 18-23
- Includes elderly parents that need your care
The child tax credit provides families and single parents with a dollar for dollar incentive for their dependent. Although the dependent exemption was eliminated, the child tax credit is much more incentive for the average taxpayer. Especially, since the so called “middle class” will now qualify for the credit. In prior years, most middle to high income taxpayers never received the credit due to less favorable thresholds of 55/110k. The thresholds have been increased to 200/400k (single & married),
In addition, the credit now being up to $1,400 refundable for taxpayers who do not have a tax liability puts money in lower income families pockets. We expect the IRS to heavily enforce due diligence requirements by continuing to have paid preparer’s complete form 8867, Paid Preparer’s Due Diligence Checklist. Not everyone may be eligible for the child tax credit so it’s important to ask your client these questions.
If you have any questions about the impact of the child tax credit and how it may impact you, don’t hesitate to message us or comment below.
Keith Boyer, CPA