The recent Republican Party tax bill has made enormous changes to US tax law. We’ve discussed a few major points of this new bill already, but there’s one area that we haven’t spoken on yet, which will have a big impact on many taxpayers—the Child Tax Credit. This area of tax law is experiencing significant changes that will impact your future tax filings. Keep reading to see how this tax credit is changing. If you have questions on this or any other aspect of your taxes, speak to a tax expert in Provo.
Total Credit Increased
The total credit taxpayers could claim under previous tax law was $1,000 per qualifying child under 17. Under the new tax law, taxpayers can claim up to $2,000 per qualifying child under 17. If the taxpayer has any dependents over 17, they may also be able to claim a $500 nonrefundable credit per non-child dependent.
Phase-Out Thresholds Raised
Previously, the Child Tax Credit was phased out for taxpayers earning over a certain AGI (adjusted gross income). This was known as the phase-out threshold, and the amounts were as follows: $75,000 for individual filers, $110,000 for married filing jointly, and $55,000 for married filing separately. For every $1,000 a taxpayer earned above this threshold, the credit they could claim was reduced by $50, until it was completely eliminated.
The new tax bill increases those thresholds to the following: $400,000 for married taxpayers filing jointly, and $200,000 for all other taxpayers. For amounts earned above these thresholds, the credit is reduced by the same rate described above.
Child SSN Required
When claiming the Child Tax Credit in previous years, the taxpayer could provide either a Social Security number (SSN) or a Taxpayer Identification Number (TIN) for any child for whom they claimed a credit.
However, under the Republican bill, TINs are no longer accepted. You must provide a valid SSN for every child you wish to claim a credit for.
Larger Portion Now Refundable
Previously, the Child Tax Credit was a nonrefundable credit. A nonrefundable credit is one that can be used to reduce the amount that you owe in taxes, but does not provide a cash refund when you file. So, under the old law, if you had no tax liability, the Child Tax Credit offered no benefit. However, the law also provided an “additional child tax credit” in the event that the credit exceeded your tax liability. For these cases, taxpayers could receive a refundable credit equal to 15% of earned income over $3,000.
The new Child Tax Credit works very differently in this regard, with a much larger portion of the credit being refundable. Of the $2,000 credit, up to $1,400 per child is a refundable credit. Additionally, the earned income threshold for the refundable credit is reduced from $3,000 to $2,500. Note that this law does eliminate the “additional child tax credit,” offering the larger refundable portion in its place.
This means that if you owe taxes when you file, your liability can be reduced by $2,000 per Child Tax Credit. If you have no tax liability, you may be refunded up to $1,400 per Child Tax Credit. Of course, most families will fall in the middle, with the Child Tax Credit offering a reduction in liability as well as a partial cash refund. The exact calculations will depend on your income level, amount owed, and number of credits claimed.
Please note that the changes to the Child Tax Credit will not be in effect until you file your 2018 taxes. If you have questions regarding your taxes, or concerns about how the new tax bill impacts your current tax planning, please contact us to speak to a tax expert in Provo.