If you have dependents, your 2018 taxes, which are filed in early 2019, may be getting lighter. The Child Tax Credit (“CTC”) for federal income taxes has been raised from a possibility of $1,000 per dependent to up to $2,000 per dependent. The possible maximum refund is also up from $1000 per child to $1400 per child for working people who do not owe taxes. These changes come with the passage of the Tax Cuts and Jobs Act.
Which Households Qualify
The maximum allowable income to qualify for the CTC has been raised from $110,000 for married couples to $400,000. The income limit for singles has also been raised from $75,000 to $200,000. Therefore, more Americans will be eligible for the CTC. The CTC has a need-based component, the amount available per-child depends on the household’s income. There is also a minimum income threshold before you can receive the CTC, set at $2,500.
Which Dependents Qualify
The following list provides the requirements for a child dependent to qualify for the CTC.
- The child must be under 17, so 16 or younger at the end of the tax year. Therefore, those children turning 17 during the tax year will not be eligible.
- The child must be one of the following: your daughter, son, stepchild, foster child, adopted child, brother, sister, stepbrother, stepsister, half sister or half brother. The child can also be the direct descendant of any of those just mentioned.
- The child must be claimed as your dependent on your federal tax return.
- The child must have a Social Security Number.
- The child must be a U.S. citizen, a U.S. national or a U.S. resident alien. For the 2018 tax year.
- The child did not provide more than half of his or her living expenses. The child also cannot file a joint return that year.
- The child must have lived with you for more than half of the tax year.
Once a household has a dependent turn 17 that household may receive a tax credit of $500 for that dependent. This credit may be received yearly until the dependent becomes self-supporting.
Big Change: The Personal Exemption
With the increase in the CTC came the elimination of the personal exemption. This exemption allowed you to claim yourself and any dependents for a reduction of $4,050 per person on taxable income. The personal exemption was unlike the CTC, which is a dollar for dollar reduction of your actual taxes. For families with dependents under 17 the change generally provides for a larger reduction in taxes. However, those families who have dependents such as college students and elderly parents may have a lower tax deduction than they had last year.
How We Can Help
This article provides an overview of the new Child Tax Credit, but the best way to understand complicated tax laws is to consult with a professional. The lawyers at Smith Strong can help you to understand the implications of many different laws and, in the case of tax law, work with you and a financial advisor, if needed, to establish a financial plan for the future. To schedule your first meeting please call (804) 325-1245 or (757) 941-4298.
Editorial Assistance By: Michael Gee - Law Clerk