The enhanced child tax credit has been highlighted as one of the provisions of the Tax Cuts and Jobs Act designed to lower overall tax liability for middle-class families. The child tax credit is temporarily increased from $1,000 to $2,000 per qualifying child for tax years 2018 through 2025. As much as $1,400 of that amount is refundable. The child tax credit is also expanded to provide for a new $500 nonrefundable credit for qualifying dependents other than qualifying children. In addition, more families will be able to take advantage of the credit due to an increase in the adjusted gross income phaseout thresholds.
Although the deduction for personal and dependency exemptions is temporarily repealed for tax years 2018 through 2025, the definition of a dependent is still applicable for the child tax credit and other tax benefits. A qualifying child for purposes of claiming the $2,000 child tax credit is the same as that for claiming a dependency exemption, except that the child must not have attained the age of 17 by the end of the year and must be a U.S. citizen, national, or resident.
A taxpayer must include on his or her return a qualifying child’s Social Security number (SSN) to receive either the refundable or nonrefundable portion of the credit with respect to that child. A SSN issued by the Social Security Administration (SSA) to the qualifying child is valid for purpose of the refundable portion only if the child is a U.S. citizen or the SSN authorizes the individual to work in the United States. In addition, the SSN must be issued to the qualifying child on or before the due date of the taxpayer’s return.
The $2,000 child tax credit per qualifying child phases out once the taxpayer’s modified adjusted gross income (MAGI) exceeds $400,000 if married filing jointly, or $200,000 for all others. The new phaseout threshold is more than double the old phaseout threshold and will allow more taxpayers to benefit from the child tax credit. The credit is reduced by $50 for $1,000 (or fraction thereof) that a taxpayer’s modified adjusted gross income (MAGI) exceeds the threshold amount. The threshold amounts are not indexed for inflation.
For each dependent who is not a qualifying child for purposes of the child tax credit, the Tax Cuts and Jobs Act provides a new nonrefundable credit of $500, if the dependent is a qualifying relative (and not a qualifying child) for purposes of claiming a dependency exemption; or a qualifying child over the age of 16. In addition, a taxpayer who cannot claim the child tax credit because a qualifying child does not have a SSN may nonetheless qualify for the nonrefundable $500 credit for the child. To claim the $500 credit, the taxpayer must include the dependent’s SSN, taxpayer identification number (TIN), or adoption taxpayer identification number (ATIN) on his or her return.
A taxpayer must file either Form 1040 or Form 1040A to claim the child tax credit. The child tax credit cannot be claimed by a taxpayer filing Form 1040-EZ. If you have any questions related to your eligibility or the available amount of the tax credits, please call our office. We are here to help you understand how you may benefit.