Child Tax Credit
By Rachel Santana, EA
Partner at Hamilton and Phillips PA
Most taxpayers with children under the age of 17 saw an increase in their tax refund in tax year 2018. This is because the Child Tax Credit, which was $1,000 per child, doubled to $2,000 per child. This was huge in that a family with two younger children would have seen a $2,000 increase on their bottom line.
In addition, the effect could be much bigger as this credit had phased out when a single person earned $75,000 or more a year ($110,000 for married couples). However, under the new tax law effective 2018, this phase-out now starts at $200,000 for a single individual and $400,000 for joint filers.
This means that a married couple earning $150,000 per year and two young children would have an increased credit / refund of $4,000. That is a huge benefit.
As this credit becomes more significant, it is important to understand when this credit goes away.
In order for a child to qualify as a dependent, they must be under the age of 19 at year-end, or they must be a full time student (for at least five months of the tax year) and under the age of 24 at year-end. They can be any age if totally and permanently disabled. They must share your residence for more than half of the year (not required if living on campus in college).
However, even though they are your dependent and meet the criteria above, the valuable Child Tax Credit is only available until the child turns 17. In the year that they turn 17 years of age, the Child Tax Credit goes away and they become eligible (per above) for the much less valuable Dependent Credit ($500).
It is important to be aware of this change and expect that your tax bill will increase or refund be lowered once your child turns 17. Good luck is the result of good planning.