The entire tax code was reformed under President Trump’s Tax Cuts and Jobs Act (TCJA). The TCJA has changed many things about the Child Tax Credit. These new rules apply to the new tax season.
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How Much do I Get Back for a Child?
Under the TCJA, the Child Tax Credit saw a substantial increase to $2,000 per qualifying child. Up to $1,400 of this amount is refundable, depending on your income. This has doubled the previous amount, and the Child Tax Credit was previously only refundable if you were also claiming the Additional Child Tax Credit.
The amount refunded from the Child Tax Credit can only be equal to 15% of your total earned income above the limit of $2,500. The amount is capped, and your income will play a role in this.
What is the Child Tax Credit?
The Child Tax Credit is a major tax credit for those with children under the age of 17. There are a number of qualifications attached to the Child Tax Credit, which we will discuss.
This tax credit subtracts an amount from the amount of tax you owe. This makes it much more valuable than a deduction, which only decreases your total taxable income.
The Child Tax Credit is partially refundable, so even if you owe nothing to the IRS, you could claim the child tax credit.
Child Tax Credit Phaseout Limits
Phaseouts are not tied to the inflation rate and start with the Modified Adjusted Gross Income (MAGI) of $200,000 for all taxpayers other than taxpayers who are married and filing jointly. For these taxpayers, their MAGI is $400,000.
If you earn more than these numbers, the value of the tax credit will begin to phase out.
How Can I Claim the Child Tax Credit this Tax Season?
If your child qualifies for the tax credit, you’ll need to file a tax return in order to take advantage of the credit. This applies even if your income is below the limit required to file taxes in the first place.
Additionally, you’ll need to fill out certain lines on Form 1040. You’ll also be required to submit Schedule 8812 alongside your tax return.
This may sound complex, but there are plenty of online tax preparation options to make this a little easier. Online tax filing will help you claim the Child Tax Credit this tax season.
What You Need to Know About the New Additional Dependent Credit
The TCJA also brought in the Additional Dependent Credit, which is worth $500 and isn’t refundable. This is aimed at taxpayers who have other dependents, such as aging parents and grandparents.
You can claim this credit if you provide at least half of the financial support of anyone who lives in your home for the entire year.
The dependent in question can’t earn more than $4,150, according to 2018 tax standards.
The Additional Dependent Credit also applies to dependent children who are 17 or over at the end of the tax year.
Like with most credits, the dependent needs to be a US citizen, national, or resident alien to qualify. You can calculate the Additional Dependent Credit along with the Child Tax Credit using the online tax credit calculator.
The phaseout limits are the same as stated above for the Child Tax Credit.
What Counts as a Qualifying Child Under Child Tax Credit Rules?
There are seven tests qualifying children must pass in order to be eligible for the Child Tax Credit.
Age – The child must be under the age of 17 at the end of the tax year.
Relationship – The child must be a close relation to you, such as a son, sister, stepbrother, or descendant of you. So they could also be a niece or a grandchild. Adopted children qualify under the same rules as if they were your biological child.
Support – The child must have provided less than half of their total financial support for the tax year.
Dependent – To qualify as a dependent, you must have provided at least half of their financial support for the tax year. They also must be claimed as a dependent on your tax return and only on your tax return.
Citizenship – Only children who are US citizens, nationals, or resident aliens can qualify.
Residency – The child must have lived with you for at least half the year. There are exceptions, so if you believe you qualify, you should read IRS Publication 972 for further guidance.
Social Security – Your child must have a Social Security Number.
There were previously only six tests dependent children had to pass in order to qualify for the Child Tax Credit. The TCJA stipulated that all children must also have a Social Security Number.
Children who have ITINs can no longer be claimed as dependents on your tax return. If you’re trying to claim an immigrant child and their status has changed, you should contact the Social Security Administration immediately.
However, if your child has lived with you for more than half the year and doesn’t yet have a valid Social Security number, they may still qualify for the Credit for Other Dependents.
The IRS website offers guidance on determining whether your child is eligible to be claimed under the rules of the Child Tax Credit.
Can I Claim the Child Tax Credit on the Year My Child is Born?
If your child was born in the second half of the tax year, they obviously haven’t lived with you for half the year, so can you still claim the Child Tax Credit?
The good news is IRS Publication 972 reveals that you can, in fact, claim them as this is one of the exceptions.
So even if your child was born in December, you can still claim the Child Tax Credit.
What About Tax Credits for Child Care Expenses?
There is also a range of tax credits designed to ease the burden on working parents who need to pay for care. You should look into this. For these credits, you’ll be required to fill in IRS Form 2441.
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