When the Tax Cuts and Jobs Act went into effect at the end of 2017, it contained some significant changes to the child tax credit.
The Child Tax Credit helps parents or guardians of children. Those who qualify earn up to $2,000 per dependents under 17. The total credit reduces your taxable federal income. For example, if you earn $50,000 and have three children under 17, you would have taxable federal income of $44,000.
Who can qualify for the Child Tax Credit? The dependents must be 16 or younger at the end of the tax year and must be the taxpayer’s natural child, stepchild, adopted child, brother, sister, stepbrother, stepsister, half sister or half brother. The taxpayer must earn at least $2,500 per year. The dependent must be claimed by the taxpayer as a dependent on the federal tax return. The child must be a true dependent, meaning the child did not provide more than half of their own support financially. The dependent must have lived with the taxpayer for more than half of the tax years, and also be a U.S. citizen.
The value of the Child Tax Credit reduces as income increases. The first phase occurs at $200,000 for single filers, and it stops at incomes above $240,000. For joint filings, the limits are $400,000 and $440,000.
An interesting new feature is refundability. For those taxpayers who owe no tax (meaning a tax bill of zero), the taxpayer can receive $1,400 as a refund for every eligible dependent.
Finally, a new feature is for non-child dependents: a taxpayer may receive a $500 non-refundable credit for each adult dependent.
If you have aging parents or other disabled relatives who live with you, you can claim them through the Child and Dependent Care Tax Credit, and it applies to children 12 or younger and dependent adults unable to care for themselves due to mental or physical impairments and a gross income of less than $4,150. The credit allows you to claim up to 35% of qualified care expenses, with a maximum expense deduction of $3,000 for one dependent and $6,000 for more than one dependent, so the largest possible tax credit is $1,050 for one and $2,100 for multiple dependents.
For parents who are divorced, only one parent can claim these child tax credits and that will be the parent who has more than 50% of the physical custody of the dependent.
If you have questions about child tax credits and divorce, contact us – we can help.