The implementation of the Tax Cuts and Jobs Act bill introduced changes to the Child Tax Credit.
The first change is an increase in the amount of the Child Tax Credit. It increased from $1,000 to $2,000 per qualifying child. The refundable part of the Child Tax Credit, known as the Additional Child Tax Credit, also increased from $1,000 per qualifying child to up to $1,400 per qualifying child.
Let’s look at an example. Chris and Virginia are married filing jointly with one qualifying child. This means that they have a Child Tax Credit of $2,000. However, they claimed the wrong number of allowances for their family size and underpaid their taxes, now owing $500 in taxes. The Child Tax Credit reduces their tax liability to $0 and leaves $1,500 extra. However, the Additional Child Tax Credit says you can only receive up to $1,400 per qualifying child so Chris and Virginia will receive $1,400 in credit (not $1,500). The new law also offers a $500.00 non-refundable credit for qualified dependents not listed as qualified children. So your child who turned 17 and is no longer considered a qualifying child.
The second change has to do with MAGI (not cousin Maggy), the Modified Adjusted Gross Income. In the previous law, married couples filing jointly had a phase-out income limit of $110,000, meaning that once you hit that amount, the credit began to phase out. Under the new law, the phase-out income limit has increased to $400,000.
The third and final change for Child Tax Credit is the requirement for the qualifying child to have a social security number that allows them to work in the United States. Before this change, children with ITIN numbers that resided in the United States could take the credit, but under the new law, they cannot.
If you found this helpful, then be a good friend and share this post with your fellow parents out there. And stay tuned for our next post on the Earned Income Credit.