Good news! With additional provisions in the Tax Cuts and Jobs Act of 2017, the old exclusive qualifying standards to apply the Child Tax Credit have been loosened up. That means you can claim additional tax credits under the Child Tax Credit and expect a bigger refund this tax season.
What changed in 2018 for Child Tax Credits?
There are still six categories to determine if your child qualifies for child tax credits: age, citizenship, relationship, support, residence, dependent. All tests must be met to qualify for the claims. The 2018 tax reforms paved the way for better provisions and benefits that can be reaped from the Child Tax Credits.
Only children below the age of 17 by the end of the year are eligible to claim child tax credits.
This is an important amendment to the old tax rules! You can now claim child tax credits for your 20-something dependents.
There is a new provision under the 2018 Tax Cuts and Jobs Act which allows $500 child tax credit for dependents who are 17 years or older.
You can claim tax credits even if your child is over 17 if the dependent lives with you for over half a year and until age 23 if the dependent is a student. Even though the credits for those above the age threshold is less, at least there’s still some kind of consideration! It isn’t bad, either, considering that there’s a 6-year extension for qualifying to claim credits.
Defining Dependents Under the New Child Tax Credit
When you file your tax return, all qualified children and dependents must be declared. Here are the criteria to determine a dependent:
- Child (Legal, adoptive, foster), sibling, grandparent, nephew or niece, etc
- Aged under 19 OR 24 but a full-time student for half of the academic school year; there is no set age limit for dependents who are permanently disabled
- Lived with you for over half of the tax year as a dependent of the household
- Did not (and not capable of) provide half or more of the dependent’s financial support
Another important factor to consider is your relationship to the dependent. You need to establish the fact that you are providing for the dependent who has consanguinity, or some kind of relationship with you. The dependent can also be your stepchild or foster child, as long as they are under your care with the approval of the court or an authorized agency.
Not only did the age of the qualifying dependent increase, but there’s also a new list that extends the definition of “dependents” to non-child family members. You can now consider your grandparents, parents, siblings, in-laws, niece, aunt, nephews, uncles, etc. who are “dependents” in your household who ALSO MEETS the other requirements to be considered qualified dependents.
– The dependent must be financially incapable of providing for themselves whose living expenses (at least more than half) must be provided for by the taxpayer. This is probably the best description for “dependent,” as dependent means “requiring someone for financial [or other kinds of] support.”
As mentioned, the dependent should have spent over half of the tax year living under your roof to be eligible for the credit. However, there are exemptions to this: If you or your dependent spent time away for business, school, vacation, or other agenda then that is still considered time spent living with you.
The dependent must be a citizen or resident of the U.S., or a U.S. resident alien. This is the reason why you are not advised to consider additional child tax credit if you file a form 2555 or 2555 EZ.
How Much Can I Claim From Child Tax Credits?
Don’t miss out on the details and just quickly assume you can get the maximum $2,000 child tax credits! After you assess your dependent’s qualifications, you can hop on to the mathematical aspect and compute your expected eligible credits and refunds depending on certain factors.
Increase in Eligible Credits
First, your dependent must have a valid Social Security Number (SSN) to be able to qualify for child tax credits.
You MUST include this information in your form 1040. Prior to Trump’s tax reforms, the maximum allowable credit per qualified child is at $1000. In 2018, it doubled to $2000 per qualified child. It’s also worth repeating that non-qualified dependents are eligible for $500 child tax credits.
Refundable Portion of Credits
The Additional Child Tax Credits no longer exist.
Previously, any child tax credits that exceed your actual tax bill cannot be refunded. Your taxes will only be reduced or completely eliminated if the credits are more than the liabilities.
But for the upcoming April 2019 deadline, you can refund 15% of the excess of $2500 of earned income with a cap of $1,400 per qualified child. Even if you owe zero taxes to the government for that tax year, you can still claim the refund.
There’s a chance that the refundable maximum of $1400 will increase because, under the new rules, inflation is taken into account. However, you must have earned income to be eligible. This means that those who earn income through other ways such as investments are not eligible for the refunds.
Important Details to Remember
And of course, there are income thresholds to claiming child tax credits.
The phase-out for married taxpayers is at $400,000 of their Modified Adjusted Gross Income (MAGI) and $200,000 of MAGI for all other taxpayers. That’s a huge leap from the previous $55,000 ($110,000 for joint filings) threshold for married taxpayers and $75,000 for all other taxpayers. High-earners can greatly benefit from this adjustment because it means they can earn that much without being exempted from the child tax credits.
The Last Word
It’s important that you assess the eligibility of your dependents based on the aforementioned qualifications and the computation of your MAGI to determine the refundable amount of the child tax credits more than your tax debts. This will determine the amount you can expect to receive from this tax credit.
Overall, the tax reforms give more savings to more taxpayers by widening the scope and thresholds of the child tax credits. Take advantage of the new tax reforms for more potential savings.