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Revamped Child Tax Credit under TCJA

The Child Tax Credit was introduced in 1997 under the Taxpayer Relief Act. The credit has gone through many changes over the past 20 years, starting out as a $400 nonrefundable credit and increasing all the way up to $1,000 per qualifying child under the age of 17. Now the tax credit under the Tax Cuts and Jobs Act (TCJA) has been revamped once again.

Starting in 2018, the TCJA has doubled the child tax credit to $2,000 per qualifying child under the age of 17. Any dependents who are not qualifying children under the age 17, will be eligible for a new $500 credit each.

To be eligible for the $2,000 child tax credit, the child must meet the following requirements:

  • Must meet the definition of a “qualified child
  • Must be under 17 at the end of the tax year
  • Must be claimed as a dependent
  • Must have a Social Security Number

To be eligible for the $500 credit, the dependent must meet the following requirements:

  • Must meet the tax test for dependency
  • Must be claimed as a dependent

The income phase-out threshold amount for the 2018 child tax credit is $200,000 for a single taxpayer and $400,000 for joint filers (increasing from $75,000 for a single taxpayer and $110,000 for joint filers). This allows several taxpayers to take advantage of the child tax credit who might have not been so fortunate in the past.

The earned income threshold for the credit is $2,500 per family, down from $3,000 under the pre-Act law, which has the potential to result in a larger refund.

Of the $2,000 Child Tax Credit, only $1,400 can be refundable. The refundable portion only applies when the taxpayer is unable to take advantage of the full $2,000 credit. The refundable portion will equal 15% of the taxpayers earned income above $2,500, refunding up to a maximum of $1,400.

If you have questions about your eligibility for the Child Tax Credit or about how the TCJA will affect your 2018 taxes, contact your local Blue & Co. tax advisor.

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