Tax Cuts and Jobs Act: Child Tax Credits
Dear Clients and Friends,
This letter discusses the changes made to the child tax credit and other dependents by the Tax Cuts and Jobs Act (TCJA).
Under pre-TCJA law, the child tax credit was $1,000 per qualifying child, but it was reduced for married couples filing jointly by $50 for every $1,000 (or part of a $1,000) by which their adjusted gross income (AGI) exceeded $110,000. (The threshold was $55,000 for married couples filing separately, and $75,000 for unmarried taxpayers.) To the extent the $1,000-per-child credit exceeded your tax liability, it resulted in a refund up to 15% of your earned income (e.g., wages, or net self-employment income) above $3,000. For taxpayers with three or more qualifying children, the excess of the taxpayer's social security taxes for the year over the taxpayer's earned income credit for the year was refundable. In all cases, the refund was limited to $1,000 per qualifying child.
Starting in 2018, the TCJA doubles the child tax credit to $2,000 per qualifying child less than 17 years of age. It also allows a new $500 credit (per dependent) for any of your dependents who are not qualifying children under 17. There is no age limit for the $500 credit, but the tax tests for dependency must be met. Under the TCJA, the refundable portion of the credit is increased to a maximum of $1,400 per qualifying child. In addition, the earned threshold is decreased to $2,500 (from $3,000 under pre-TCJA law). The $500 credit for dependents other than qualifying children is nonrefundable.
The TCJA also substantially increases the phase-out thresholds for the credit. Starting in 2018, the total credit amount allowed to a married couple filing jointly is reduced by $50 for every $1,000 (or part of a $1,000) by which their AGI exceeds $400,000 (up from the pre-TCJA threshold of $110,000). The threshold is $200,000 for all other taxpayers.
In order to claim the credit for a qualifying child, you must include that child's Social Security number (SSN) on your tax return. Under pre-TCJA law, you could also use an individual taxpayer identification number (ITIN) or adoption taxpayer identification number (ATIN). If a qualifying child does not have an SSN, you will not be able to claim the $2,000 credit, but you can claim the $500 credit for that child using an ITIN or an ATIN.
If you have any questions, please contact our office.
Very truly yours,
YOUNG & ASSOCIATES, LLC