American Tax Service

Helping Americans File Their Taxes

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What You Need to Know about the New Child Tax Credit

The original child tax credit, known as the CTC, was first introduced back in 1997, before becoming available to claim in 1998. In the beginning, this was a simple nonrefundable credit for $400, which applied to each qualifying child if they were under the age of 17.

child tax credit

There have been many changes over the last 20 years, with qualifying children being worth a tax credit of $1000 per child. This was refundable for taxpayers who had at least $3,000 of earned income.

Taxpayers who had above $75,000, or $110,000 for joint taxpayers, saw the tax credit decreased or removed entirely.

But What’s Important about the Child Tax Credit?

The Tax Cuts and Jobs Act (TCJA) has changed several aspects of the child tax credit. You should be aware of these changes if you claim the child tax credit.

Higher Amount – Each qualifying child under 17 is now worth $2,000 to families.

Refundable – Now, the refundable part of the tax credit is limited to just $1,400. Following 2018, this limit will be adjusted according to inflation.

Earned Income – This threshold has been limited to $2,500.

Credit Phaseout – The credit phaseout limit, where it begins, is now $200,000, or double if you’re filing jointly. It also applies to the additional $500 credit for any other dependents in your household.

Social Security Number – Each qualifying child must have a social security number to qualify.

What’s the Impact of Tax Reform on the Child Tax Credit?

Before the implementation of the TCJA legislation, taxpayers who could claim the child’s dependent exemption could also claim the CTC. Both the child and the taxpayer had to meet various criteria for the government to consider someone as ‘dependent.’

The TCJA has changed the rules, and the dependent exemption has been eliminated entirely. However, the ‘dependent’ definition has been retained in relation to the CTC.

What Does This Mean?

It means that the new CTC makes sure the taxpayer must be related to the child, such as being a son or a grandchild. They must also live in the taxpayer’s house for at least half of the year, and they can’t provide more than half of their own support.

There are other special rules for divorced or legally separated parents that must be considered. Talk to a tax professional if this situation applies to you.

As before, due diligence requirements are in place for tax professionals who prepare returns on behalf of CTC claimants.

These changes are valid until the end of the year 2025.

How to Claim the Child Tax Credit

In order to claim the child tax credit, you have to make sure that your child is considered a qualifying child. You also have to list them as a dependent on Form 1040.  Keep in mind; it’s easy to claim the credit if you file with H&R Block Online.

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