A Bigger Child Tax Credit: Changes by IRS

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One of the largest changes for The Tax Cuts and Jobs Act of 2018 has to do with the changes to the child tax credit.  Child tax credits are available for low- and moderate-income families to help offset the costs of children, and for qualifying filers, this can mean significant cost savings when filing your taxes.

We now have a new federal tax plan and one of the biggest benefits to the Trump Tax changes is that the child tax credit has been changed from a non-refundable credit to giving you up to $1400 refundable credit. The child tax credit changes are significant because this is a new opportunity for many Americans to potentially put some hard-earned money back in their pockets. 

There have been changes to both the qualifications and credit amounts for filers, and the intent of this article is to help summarize those changes that are applicable.

When do the new child tax credit changes take effect?

 

The new child tax credit changes take effect immediately for your 2018 filed returns.  As long as the child was not older than 17 by the end of the filing year, they will qualify as part of the credit.  With the new child tax changes, you can take advantage of the broader eligibility requirements, and the credit amount per child has now doubled!

The child tax changes from the Tax Cuts and Jobs Act of 2018 are scheduled to remain in effect until 2025.

How much is the child tax credit? The child tax credit has increased from $1000 to $2000 per child (maximum of 3) in 2018 for filers.  This is a significant increase.  In addition, the qualifications for the child tax credit have broadened, meaning more families can now qualify that previously could not.   There is also a $300 credit for non-child dependents available to help offset the burden of dependents older than the maximum age of 17 for the child tax credit.

How much do you get back?

 

Since you are utilizing a tax credit, you essentially are reducing your tax bill directly for each child.  Comparing this to a deduction where you are lowering your taxable income only, a credit is a much more advantageous position for filers. 

In addition, since the 2018 tax laws changed the child tax credit to be refundable, this means you can get some refund money back depending on your situation.  The total amount you can get back from the child tax credit depends on your specific tax situation, and the amount you get back is capped at 15% your income.

Eligibility requirements for the child tax credit

 

There are complicated rules associated with eligibility for the child tax credit, but luckily the IRS publishes a ton of information online to help you determine if you qualify.  Some of the basic requirements are that you must be the child’s legal guardian, they must be under the age of 17 during the tax year filed and a legal resident of the United States, and you must be providing them financial assistance and claiming them as a dependent.

There also cannot be multiple claims for the child tax credit on a single individual or child. You may also be able to get the child tax credit with no income.

Claiming a child on taxes that is not yours

 

You can claim the child tax credit for individuals that are not your direct born children, but you must be related in some fashion.  If you are the child’s legal guardian, such as an Aunt, Uncle, Adopting Parent, Foster Child, Step Child, or sibling.  So long as you are providing financial support for the child and they are a dependent, you are likely eligible to claim the child tax credit.