The Child Tax Credit law under section 24 of the 26US Code has changed a lot from the tax year 2018 with the passage of the Tax Cuts & Jobs Act. Earlier i.e before TCJA, a taxpayer could claim a tax credit worth up to $1,000 per qualifying child. but from the tax year 2018 onwards, you can claim tax credit
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New Child Tax Credit Rules from 2018
Major child tax credit changes are as under :
- The Child Tax Credit is now worth up to $2,000 per qualifying child.
- The refundable portion of the child tax credit is limited to $1,400 ( 15% of earned income ) for the tax year 2018 subject to income phaseout.
- The age cut-off remains at 17 at the end of the year. Further, a valid SSN to the child is a must to qualify for Child Tax Credit.
- The minimum income that you must earn for claiming child tax
credit is now to $ 2,500.Earned income can be from wages, salary, tips, employer-based disability, self-employment income, military pay, etc - The beginning credit phaseout for the child tax credit starts at $200,000 ($400,000 for joint filers).
- From the year 2018, you can claim an additional non-refundable tax credit of $500 for qualifying relatives who may not necessarily have to be children below 17
years . This is explained later in this article.
Since this credit is non-refundable, it can only help reduce taxes owed. If you can claim both this credit and the CTC, this will be applied first to lower your taxable income.
Who is a “Qualified Child” for the Child Tax Credit?
The newly amended law for a claim of the child tax credit as altered the eligibility conditions states that the child must be a qualified child. So we need to understand “Who is a qualified child ?” for the purpose of the claim of the child tax credit. A qualifying child is one :
- Who is of age 16 or younger – at the end of the year.
- Who is related to the claimant of the child tax credit as a – son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals (includes your grandchild, niece, or nephew) or is a legally adopted child
- The child must not have provided more than half of their own support for the year.
- You must claim the child as a dependent and that you provided at least half
the child’s support during the tax year. - The child must be a U.S. citizen, U.S. national, or U.S. resident alien.
- The child must be resident of
USA ( means lived with you for more than half of the tax year.) , although there is some exception. Refer to IRS Publication 972, Child Tax Credit. - The child must have a Social Security Number before due date of filing tax return.
What is Child Tax Credit Income Levels & Phaseout ?
Child tax credit phaseouts
How phaseouts work ?
Under new rule of phaseout computation, there is
Can You Claim Refund of the Child Tax Credit?
The answer is a definite yes provided there is a balance of child tax credit eliminating any taxes you owe. If that be the case , you can claim a refund by submitting child tax credit form Schedule 8812, the “Additional Child Tax Credit” with your tax return.
The refundable portion is equal to 15% of your earned income over $2,500, up to $1,400. To estimate how much of the refund you would receive, you can use the following equation:
(Your salary – $2,500) x .15
$500 Additional Dependent Credit
This is from the tax year 2018 onwards, courtsey TCJA. The additional $500 non-refundable tax credit is available to anyone who satisfies following three conditions
(i) provides half the financial support to a parent or grandparent, stepparent, aunt or uncle, niece or nephew, in-laws, or someone who lives in your home all year long, and
(ii) the dependent doesn’t earn more than $4,150 (for
The qualifying dependent must be a U.S. citizen, U.S. national, or U.S. resident alien.
The additional tax credit of $ 500 is counted along with main child tax credit for a single phase out when adjusted gross income exceeds $200,000, or $400,000 if married filing jointly.
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