Do I Qualify for a Child Tax Credit? by Nancy M. Valdes, CPA
Raising children is expensive. To help families offset some of their child-rearing costs, the U.S. tax code offers a tax credit for each child under the age of 17 who lives with a taxpaying parent or guardian for more than half of the year. Effective Jan. 1, 2018, more families qualify for the Child Tax Credit, which the new tax law doubled and made partially refundable.
The Tax Cuts and Jobs Act (TCJA) increased the Child Tax Credit in 2018 and 2019 to $2,000 per qualifying child who meets the following criteria:
- He or she is a U.S. citizen or U.S. resident alien and 16 years old or younger on the last day of the tax year;
- He or she is claimed as a dependent of the taxpayer’s federal income tax return and does not pay for more than half of his or her living expenses; and
- He or she lived with the taxpayer for more than half of the tax year and is either the taxpayer’s son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of any of those family members.
Unlike a tax deduction that reduces the amount of income subject to tax, a tax credit provides taxpayers with a dollar-for-dollar reduction in the amount of money they owe to the IRS. In addition, because the Child Tax Credit is partially refundable, taxpayers who do not have tax liabilities after filing their federal income tax returns in April 2019 may receive a credit of up to $1,400 for each eligible child, depending on the taxpayers’ adjusted gross income (AGI) for the year. The refundable portion of the Child Tax Credit remains at $1,400 for tax-year 2019 and is set to be adjusted upward for inflation in subsequent years.
The TCJA also makes it easier for more families with young children to qualify for the full amount of the Child Tax Credit by lowering the income threshold to $2,500 per family while also increasing the income level at which the credit begins to phase out. For 2018, the Child Tax Credit begins to phase out when a taxpayer’s adjusted gross income (AGI) reaches $200,000, or $400,000 for married couples filing jointly. The credit completely disappears when a taxpayer’s income reaches $240,000, or $440,000 for married couples filing jointly.
Taxpayers who do not qualify to claim Child Tax Credits may be eligible to claim a new, $500 nonrefundable Credit for Other Dependents. Introduced by the TCJA, this family credit is available to taxpayers who provide support to a dependent over the age of 17, including aging parents or disabled adult family members.
About the Author: Nancy M. Valdes, CPA, is a senior manager with Berkowitz Pollack Brant’s Tax Services practice, where she works with U.S. and foreign-based entrepreneurs and closely held businesses to manage cash flow, protect assets and maintain tax efficiency. She can be reached at the CPA firm’s Miami office at (305) 379-7000 or via email at email@example.com.
Information contained in this article is subject to change based on further interpretation of tax laws and subsequent guidance issued by the Internal Revenue Service.