[Trump/GOP Tax Reforms and impact to CTC] As part of GOP tax reform bills to support President Trump’s tax reform agenda, there were provisions in place to increase the child tax credit (CTC) from the current $1,000 to $1,600 (House bill) or to $2,000 (Senate bill). However in the final/reconciled bill the CTC is set to $2,000 per child and will higher income and deductibility restrictions then current levels (see prior update below).
The CTC however would only be refundable up to $1,400 per child and start to phase out for those with incomes above $200,000 (single) and $400,000 (married). These income phase out thresholds are more than three times prior limits so will mean a lot more families can take advantage of this credit.
The CTC increase to $2,000 would be in effect from 2018 (i.e you cannot claim it for the 2017 tax year) would expire by 2025 along with several other tax provisions in the GOP tax reform bill.
Note that in addition to the CTC the new GOP tax reforms have kept intact the existing child and dependent care credit, which can be worth up to $1,050 for one child under age 13 or $2,100 for two kids under 13. This credit is only for working parents with earned income who are paying for eligible child or daycare. The Earned income credit (EITC) and Dependent care flexible spending account (FSA) rules were also left intact per current law.
The tax bill also contains a new $500 temporary or flexibility credit (see details) for non-child dependents – E.g for elderly or disabled dependents. This is to provide some relief to those families who will lose the now defunct personal exemption.
The IRS announced the child tax credit (CTC) will remain at $1,000 per child in 2018, the same level as it was in 2018. Families must have at least $3,000 in earned income to claim any portion of the credit and can receive a refund worth 15 percent of earnings above $3,000, up to $1,000 per child. The table below shows the maximum income thresholds for getting the full CTC payment
The CTC payment works as a deduction and a credit. The deduction component means it is not fully refundable and only reduces your tax liability. So if the amount of your Child Tax Credit is greater than the amount of income tax you owe then you may not get the entire CTC. But you may still be able to claim the Additional Child Tax Credit (ACTC) which is the refundable component of the child tax credit (but treated as a separate payment). The ACTC is equal to the lesser of the un-allowed Child Tax Credit, or 15% of your earned income that is more than $3,000.
For example a couple, with one qualified child, who filed jointly with household income of $85,000 will receive the full CTC of $1,000 since their income is above $3,000 but less than the maximum income thresholds for married couples shown in the table below. Another example is a single mother with two children earning $14,500. She will receive a refund of $1,725 for two children (15 percent of $11,500 – which is the difference between $14,500 and $3,000).
The updated income thresholds for CTC qualification are shown below, which have remained unchanged for the last several years.
|Year||Max Tax Credit Amount||Income Thresholds (reduced/phased-out by $50 for each $1,000 of income above the income threshold)|
|2018||$1,000||$110,000 (joint return), $75,000 (individual) and $55,000 (married, filing separate)|
|2017||$1,000||$110,000 (joint return), $75,000 (individual) and $55,000 (married, filing separate)|
|2016||$1,000||$110,000 (joint return), $75,000 (individual) and $55,000 (married, filing separate)|
|2015||$1,000||$110,000 (joint return), $75,000 (individual) and $55,000 (married, filing separate)|
EITC and ACTC Related Tax Refund Delays: The IRS has already announced that it will have to hold/delay refund payments for people claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) due to additional anti-fraud safeguards/reviews under newly enacted laws (PATH Act). While the IRS will continue to accept returns claiming EITC and ACTC the new law requires the IRS to hold refunds on tax returns claiming these popular credits, even if you have claimed it successfully in past years, until Feb. 15th 2017. Refund payments will subsequently be delayed past the current schedule up to the week of Feb 27th, 2017 or later (assuming all other items are in order). Also note that the IRS is required to hold the entire refund — even the portion not associated with the EITC and ACTC. Note however that this refund hold only applies to the Additional Child tax credit. Not the standard Child tax credit.
The threshold for the other child related tax credit, known as the kiddie tax – meaning the amount of unearned net income that a child can take home without paying any federal income tax was is $1,050. For 2017, the net unearned income for a child under the age of 19 (or a full-time student under the age of 24) that is not subject to “kiddie tax” is $2,100.
Child Tax Credit Qualification rules
The Child Tax Credit (CTC) covers children under 17 years-old and is available to tax paying parents or legal guardians on the child. Full CTC eligibility is subject to income limits as shown in the table above. The IRS has published additional information around claiming this credit via one or qualifying children. A Qualifying child for this credit is someone who meets the following criteria of six tests: age, relationship, support, dependent, citizenship, and residence:
- Age Test – To qualify, a child must have been under age of 17 (i.e. 16 years old or younger) at the end of the year in which the credit is being claimed for.
- Relationship Test – To claim a child for purposes of the Child Tax Credit, they must either be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals, which includes your grandchild, niece or nephew. An adopted child is always treated as your own child.
- Support Test – In order to claim a child for this credit, the child must not have provided more than half of their financial support in the given financial year the credit is being claimed for.
- Dependent Test – You must claim the child as a dependent on your federal tax return. No one else can claim the child.
- Citizenship Test – To meet the citizenship test, the child must be a U.S. citizen, U.S. national, or U.S. resident alien.
- Residence Test – The child must have lived with you for more than half of the year you are the claiming the credit for.
- Income Limitations – The credit is limited if your modified adjusted gross income is above a certain amount. Limits are shown in the table above based on filing status. The credit is reduced/phased-out by $50 for each $1,000 of income above the income threshold amounts. The phaseout ranges are set by statute and so are not adjusted for inflation.
- In addition, the Child Tax Credit is generally limited by the amount of the income tax you owe as well as any alternative minimum tax (AMT) you owe.
- Additional Child Tax Credit (ACTC) – If the amount of your Child Tax Credit is greater than the amount of income tax you owe, you may be able to claim the Additional Child Tax Credit (ACTC). The ACTC is equal to the lesser of the un-allowed Child Tax Credit, or 15% of your earned income that is more than $3,000.
[2014 Update] This IRS has confirmed that the 2014 Child tax credit will remain at $1,000 through 2014.
[2013 Update] For 2013, the Child Tax Credit was set to drop to $500. However with the fiscal cliff deal the child tax credit maximum for each eligible under-age-17 child was kept at $1,000 for 2013 and also extended through 2017. The deal also contains provisions to make the 2013 Child Tax Credit available to more working families that previously could not benefit from it by raising income qualification thresholds, which are not indexed to inflation and instead set by statute.
For 2012 the child tax credit started phasing out (reducing) for those above a specified modified adjusted gross income (MAGI). For married taxpayers filing a joint return, the phase-out begins at $110,000. For married taxpayers filing a separate return, it begins at $55,000. For all other taxpayers, the phase-out begins at $75,000. The credit is reduced/phased-out by $50 for each $1,000 of income above the income threshold amounts.
In addition, the Child Tax Credit is generally limited by the amount of the income tax you owe as well as any alternative minimum tax (AMT) you owe. Other qualification details for the credit, per the update below, are set to remain the same.
As part of bush-era tax cuts extension legislation (Tax Relief, Unemployment Insurance Re-authorization, and Job Creation Act of 2010), a number of popular tax breaks were extended. This includes the valuable tax credit for dependent children that many parents have taken advantage of over the last few years. Thanks to past legislation the child tax credit was doubled to its current level of $1,000, plus making the eligibility and qualification thresholds lower so that more families can take advantage of it. The latest legislation keeps all past rules intact and funds the credit for another two years.