Have Kids? Changes to the Child Tax Credit May Affect You

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As summer quickly fades and the kids head back to school, now is a perfect time to double check your paycheck withholding to make sure you’re taking advantage of recent changes to the Child Tax Credit (CTC). I mean, who wants to pay more taxes than they absolutely have to?

The Tax Cuts and Jobs Act (TCJA), enacted into law earlier this year, doubles the available credit amount for taxpayers with children or other dependents under 17 years old in the United States. These changes will affect 2018 tax returns and could result in significant reductions to your taxable income – which is a good thing!

While the TCJA introduced dozens of “yuge” changes to our tax system like rates, deductions and health insurance requirements, doubling the Child Tax Credit is likely to offer the most widespread benefit for families – especially those with higher incomes.

Below is a summary of key changes:

  • Child Tax Credit raised from $1,000 to $2,000.
  • Additional Child Tax Credit (ACTC) raised to $1400 and is now available to certain individuals who can’t receive the full CTC amount. In addition, the credit may give taxpayers a refund even if they don’t owe any tax.
  • "Phase-outs” for the CTC and ACTC adjusted to $400,000 for couples and $200,000 for singles, compared with 2017 amounts of $110,000 for couples and $75,000 for singles.
  • New credit up to $500 per qualifying person added for dependents who can’t be claimed on the CTC.
  • Taxpayers whose income was too high to benefit from the CTC in prior years may now qualify.
  • Qualifying children or dependents must have a valid SSN to claim the nonrefundable and refundable credit.

Higher income households stand to gain the most from the revised CTC, with phase-out thresholds increasing nearly $300K for couples and $125K for singles. For example, a couple with 2 children earning $200K wouldn’t have been able to take a CTC in 2017. Basically, joint filers with higher incomes wouldn’t benefit from claiming their children on previous year’s returns. But thanks to the TCJA, all that’s changed!

Now, this same family will be able to claim $4,000 in additional credits for 2018 due to the recent tax law changes. And with other potential savings like reduced tax rates and adjustments to the tax bracket, a higher income family of 4 could see significant reductions to their tax liability over previous years.

Regardless of what tax bracket you fall into, we suggest using the IRS’s Interactive Tax Assistant to see if you’re eligible to claim the Child Tax Credit for 2018. In addition, we strongly recommend taxpayers check their withholding to make sure you’re having the correct amount taken out of your paycheck. The sooner you verify this info, the more time there is for withholding to take place evenly throughout the rest of the year.

When it comes time to claim these credits on your tax return, the IRS now requires tax preparers to obtain even more documentation to verify that you are indeed eligible to claim these credits.  So, be aware that we may have to ask for documents which you might not have needed to provide in the past.

If you have any questions about changes to the Child Tax Credit or TCJA, please CONTACT US right away. We’re here to help!