Tax reform is still a mystery to many people. Just because the bill has passed and is now in full swing doesn’t mean that the majority people actually understand the ins and outs of the new legislation. In the coming weeks, we will dig into some of the details. On today’s docket – the child tax credit.

babyFirst of all, how can you qualify for the credit? Well, obviously, you need to have a child. That child must have been under the age of 17 by December 31 and have been a legal US citizen. The child must be claimed as a dependent on your tax return and you must also meet the relationship test – the child is your son, daughter, stepson, stepdaughter, legally adopted son, or daughter, etc. (grandchildren and nieces and nephews qualify as well if you are their legal guardian). In addition, the child MUST have lived with you for more than half of the year during 2017 and not provided more than half of his or her support during the year.

Now that you’ve discovered that you qualify, what does that mean? Well, for 2017, qualifying filers can receive a refundable credit worth up to $1,000 in their wallet. Other filers can qualify for non-refundable child tax credit which can reduce their tax liability to zero, but can’t receive a refund for any excess credit left over. For significant earners in higher income brackets, the child tax credit is slowly phased out until it reaches zero. The thresholds for these phase-outs for 2017 filings begin at $75,000 for single or head of household and $110,000 for married filers.

Many of you may have heard talk of an increased child tax credit during all of the tax reform chatter. Well, you’re absolutely right! Starting January 1, 2018, the child tax credit was doubled to $2,000 per child, with $1,400 of that credit being refundable to qualifying filers. This increase in the refundable portion was designed to help working families who don’t earn enough to owe federal income taxes get more money back in their wallets. Unlike the income limits for the previous child tax credit, the phase-out limits have increased significantly! For single filers, the phase-out doesn’t begin until $200,000 (previously $75,000); for married filers, the phase-out begins at $400,000 (previously $110,000). This new credit amount and increased refundable portion won’t take place until you file your taxes for 2018 (so next year). It’s something many filers can look forward to.

In addition to the increased child tax credit, the new tax bill also has a “family credit” available. This familycredit is for families with qualifying dependents who don’t meet the qualifying standards of a qualifying child (i.e. elderly parents, children over the age of 16, dependents with disabilities, etc.). This credit was designed to help families who would “miss out” on the previous “personal exemption” for all dependents. The credit is non-refundable and begins to phase out at $200,000 for single filers and $400,000 for married filers. Like the child tax credit previously discussed, this family credit is only slated to be in effect until 2025 unless Congress decides to extend it.

As always, Wealth Builders CPAs & Consultants are at your service to answer your questions on all things taxes. The 2017 filing season is gearing up, so make sure to book your appointment! Tax Day this year isn’t until April 18, 2018, but you can always file sooner! The IRS has finally released the first day to file – Monday, January 29, 2018 (about 3 weeks away). If you don’t want to have an extension filed, make sure to have all of your tax documents to us no later than March 31, 2018 to ensure that our staff can perform our signature “triple check” to ensure that you get every last deduction you qualify for. Both new and existing customers can take advantage of our 2018 tax promotional offers (LINK). Call today to schedule your free consultation!

 

“Child Tax Credit.” Intuit Turbo Tax, turbotax.intuit.com/tax-tips/family/child-tax-credit/L9ZIjdiZz.

“What is the Child Tax Credit?” Efile, www.efile.com/do-i-qualify-for-the-child-tax-credit-who-is-eligible/.

Long, Heather. “The Final GOP Tax Bill is Complete. Here’s What’s In It.” Washington Post, 15 Dec. 2017, www.washingtonpost.com/new/wonk/wp/2017/12/15/the-final-gop-tax-bill-is-complete-heres-what-is-in-it/?utm_term=.00380df13395.