Tax Credits for Children and Other Dependents
By Rob Poterucha, CPA
The Tax Cuts & Jobs Act (“TCJA”) is the biggest change to the tax code since 1986 and has brought a myriad of changes that will affect every single taxpayer. One of the changes that may affect taxpayers is the new and expanded child tax credit. With the repeal of personal exemptions from 2018-2025, the child tax credit ($2,000 per qualifying child) is a huge reason why many taxpayers will see an overall decrease in taxes from 2017 to 2018.
First, a “qualifying child” must be defined. A qualifying child must meet various tests:
- The child must be 16 years old or younger as of December 31, 2018.
- The child must be your daughter, son, foster child, or adopted child. The child could also be your grandchild or descendant of one of your siblings.
- The child must have lived with you for more than half the year.
- The child must be claimed as a dependent on your federal tax return.
- The child must not have provided more than half of their own support.
- The child must be a U.S. citizen.
Next, who is eligible to claim the child tax credit? The credit is dependent on your adjusted gross income (“AGI”). For married taxpayers, the full $2,000 credit is available for taxpayers with less than $400,000 of AGI. You are eligible for a partial child tax credit if your AGI is between $400,000 and $440,000. Once it is over this amount, no child tax credit is available. For single, head of household, and married filing separately taxpayers, the full credit is available for taxpayers with less than $200,000 of AGI. It is also phased out over $40,000 so no benefit is received if you are over $240,000 of AGI.
For comparison, the pre-TCJA laws stated that the credit was only $1,000 per qualifying child, and the phaseouts started at $110,000 for married taxpayers and $75,000 for single taxpayers. This means that many more taxpayers will claim the child tax credit in 2018 which will reduce tax liabilities.
There is also a credit available for “other dependents” under the TCJA. This credit equals $500 and is available for two categories of dependents:
- Children over 16 years old that don’t qualify for the child tax credit above
- Qualifying relatives that you support such as dependent parents
The same limitations and phaseouts mentioned above also apply to this credit, so this is a great way to reduce your tax liability.
If you have any questions about the child tax credit or the other dependent tax credit, please reach out to your CPA who can walk you through the new rules.
Rob Poterucha, CPA | Supervisor
RPoterucha@MHCScpa.com