The Tax Cut & Jobs Act created some significant tax changes. The Child Tax Credit was one of the most notable changes to the new tax law that will surely impact many families in 2019.
Are you having trouble understanding the new tax law? Would like a less formal, clear explanation of what is a Child Tax Credit and how it was changed for the 2018 tax year?
Here is your resource for all questions related to the new Child Tax Credit for the 2018 tax year…
What is the Child Tax Credit?
If you have never used the credit in the past, the Child Tax Credit helps families with a qualified dependant under the age of 17.
The tax credit allows families to subtract the amount from actual taxes owed. It is actually technically different from a ‘deduction’, another term that you hear a lot about regarding income tax.
Changes to the Child Tax Credit
Before the 2018 tax year, the existing Child Tax Credit was $1,000 per qualifying child. However, the new tax law bumped up the Child Tax Credit, essentially doubling it.
Now the Child Tax Credit is $2,000 per qualifying child, and is refundable up to $1,400. The refundable portion is noteworthy as previously the credit was only refundable if taxpayers also filed for the Additional Child Tax Credit.
Based on the new law, the Child Tax Credit amount that is refundable is equal to 15 percent of earned income above $2,500. However, the amount is capped and subject to other income phase-outs.
What is a Phase-out?
Phase-out is an IRS term that represents a gradual reduction of a tax credit that a taxpayer is eligible to receive as their income approaches a certain designated limit. Therefore, once the taxpayer reaches the limit he or she is no longer eligible for the credit.
In regards to the new Child Tax Credit phase-out (which is not indexed for inflation) will begin with a modified adjusted gross income (MAGI) of more than $400,000 for married taxpayers filing jointly, and more than $200,000 for all other taxpayers.
How do I qualify for the Child Tax Credit?
In order to find out if you qualify for the CTC, you need to check for a few factors:
- The child must be under age 17 at the end of the tax year.
- The child must be a U.S. citizen, a U.S. national, or a resident alien.
- The child must have lived with you for more than half of the tax year.
- The child must also be claimed as your dependent on the federal tax return.
- The child must qualify as a son, daughter, stepchild, foster child, adopted child, brother, sister, step-sibling, or half-sibling. It can also be a direct descendant.
- The child must not have provided more than half of their own support. In order to determine what the IRS designates as “support” you should contact a tax pro.
There are also income restrictions for the CTC. The worksheet provided by the IRS, or reaching out to a tax expert can help assess your individual situation.
How do I apply for the Child Tax Credit?
If the dependant matches all of the qualifications listed above, you can and should apply for the Child Tax Credit in order to receive a tax break.
In order to claim the credit use Form 1040 (line 12a), or Form 1040NR (line 49). There is a worksheet provided by the IRS that can also help determine how much of the credit you qualify for and is available online or through a tax professional.
Other Tax Credits Available to Families
In addition to the Child Tax Credit, you may also qualify to claim a child through the Additional Child Tax Credit (ACTC), Credit for Other Dependants (ODC), Child and Dependent Care Tax Credit (CDCTC), or state-level CTC credits.
For More Information
Need more information about the Child Tax Credit and its changes that go into effect regarding the 2018 tax year? Visit us at www.levytaxhelp.com, or call 800-TAX-LEVY, for more information.