Tax Prep & Planning

Tax Reform Impacts the Child Tax Credit – Here’s What’s Changed…

The Tax Cuts and Jobs Act (TCJA) was enacted in late 2017, and in it are many modified tax laws. One of the biggest changes is related to the child tax credit (CTC), a credit claimed by millions of families in America. While the credit is not technically new, there are updates to it, so it’s important to stay abreast of the changes as they may impact your next tax return.

Here’s a brief history of the credit and how you can claim qualifying persons in 2018.

A Brief History

The child tax credit was first available in 1998 as a nonrefundable credit of $400 for each qualifying child under the age of 17. In the past 20 years it has undergone many changes. Under pre-TCJA law, the credit was:

  • Worth up to $1,000 per qualifying child
  • Refundable for taxpayers with earned income of at least $3,000
  • Phased out for taxpayers with an AGI above $75,000 ($110,000 for joint filers)
  • Available for a child with an individual tax ID number (ITIN) or Social Security number (SSN); the child had to be a U.S. citizen or U.S. resident alien or U.S. national

Under TCJA, the following applies to the child tax credit in 2018:

  • The credit is worth up to $2,000 per qualifying child.
  • The age cut-off remains at 17. (The child must be under 17 at the end of the year)
  • The child must have a valid SSN for taxpayers to claim the credit; U.S. citizenship or residency is still required.
  • The refundable portion of the credit is limited to $1,400. (This amount will be adjusted for inflation after 2018.)
  • The earned income threshold for the refundable credit is $2,500.
  • The beginning credit phaseout for the child tax credit increases to $200,000 ($400,000 for joint filers). The phaseout also applies to the new $500 credit for other dependents.

New Eligibility Definitions for the Child Tax Credit

Prior to 2018, if you were eligible to claim a dependent exemption for a child, you were potentially eligible to claim the child tax credit. However, you and your dependent child had to pass several tests to be considered for the credit as explained above.

Tax reform now considers the following:

  • It eliminates the dependent exemption itself, but retains the definition of dependent to claim the new child tax credit and other child- or dependent-related tax benefits.
  • This means that dependents will now qualify the taxpayer to claim the child tax credit or, if the dependent isn’t eligible for the child tax credit, the new $500 credit for other dependents.
  • Special rules apply if the parents are divorced or legally separated.
  • As under previous law, strict due diligence requirements apply for tax professionals who prepare returns with the child tax credit or other dependent credit during the 2018 tax year and going forward.
  • All changes to the new child tax credit are scheduled to expire after December 31, 2025.

Questions About The New Child Tax Credit?

To learn more about how your taxes may change this year, get matched with a tax advisor who can help you. Our tax advisors have specialized knowledge for your unique tax situation, with an average of 15 years of tax experience each.

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