As a result of The Tax Cuts and Jobs Act (TCJA) of 2017, the largest tax reform in over 30 years, the Child Tax Credit has been significantly expanded.
This credit has been utilized by millions of American Families over the years. In prior tax years, eligible taxpayers received a nonrefundable credit of up to $1,000 per child. Under the TCJA, the tax credit for eligible taxpayers has increased to $2,000 per child and is refundable up to $1,400. As an added bonus, the new tax law added a $500 credit for qualifying dependents in your household who do not meet the definition of a child. So, for example, if you have a parent whom you support and meets the definition of a dependent you can claim the $500 credit.
Probably the most significant change to the child tax credit is the increase to adjusted gross income (AGI) levels at which the credit is subject to phase-out. Under the previous rules, the AGI phase-out level for joint filers was $110,000 and $75,000 for single filers. Under the TCJA, these phase-out limits have increased to $400,000 for joint filers and $200,000 for single filers. Please see the chart below for the details of these new phase-out levels.
The new tax law did not significantly change the definition of a child eligible for the child tax credit. As a reminder, here are the criteria, all of which must be met for a child to qualify:
- The child must be under 17 – age 16 or younger at the end of the tax year.
- The child must be either your son, daughter, stepchild, foster child, brother/sister, stepbrother/sister, or descendant of any of these individuals which can include your grandchild, niece, or nephew.
- The child must not have provided more than one half of his/her own support.
- The taxpayer must claim the child as a dependent on his/her federal tax return.
- The child must be a U.S. Citizen, U.S. national, or U.S. resident alien and must have a valid Social Security Number.
- Lastly, the child must have lived with you for more than half of the tax year.
As a result of these changes, we expect a large increase in the number of our clients eligible to take the Child Tax Credit. If you have any questions about your own eligibility for this credit feel free to reach out to us anytime.