The changes to the Child Tax Credit (CTC) and a new Dependent Tax Credit are two provisions of the Tax Cuts and Jobs Act which may have a positive impact, specific to taxpayers who have children or other dependents whom they support financially. Our New York City tax office can help you understand these changes in more detail.
How the CTC works—As part of the American Taxpayer Relief Act (ATRA) in 2012, the Child Tax Credit, which reduced parents’ tax burden, was made permanent. Under the new tax law this tax credit has increased from $1,000 to $2,000 per qualifying child depending on a parent’s taxable income.
You may qualify for the CTC under tax reform, even if you didn’t before—Another important bit of good news related to the Child Tax Credit: tax reform increased the income threshold for phase out of the credit to $400,000 for couples and $200,000 for singles. This is a big increase when compared with the 2017 tax year amounts of $110,000 for couples and $75,000 for singles. As such, even if you didn’t qualify for the Child Tax Credit in prior years because your income was too high, you may now find that you do.
Since this is a tax credit rather than a tax deduction, the Child Tax Credit reduces your tax liability dollar for dollar with the amount of the allowable credit. This is in contrast to a deduction which simply reduces your taxable income. However, the credit still cannot be taken for more than the amount of tax you owe to the IRS.
The Additional Child Tax Credit has also increased—If you are not able to use the full Child Tax Credit because it is more than the tax you owe, you may be able to use the Additional Child Tax Credit. In this case, you may be eligible to claim this credit, allowing you to receive a payment (i.e. a tax refund) for the unused portion of your Child Tax Credit. Under the new law, the Additional Child Tax Credit increased from $1,000 to $1,400. However, if you are able to claim the full amount of the Child Tax Credit, you will not be eligible to claim this credit as well.
If you have questions about how you may qualify for the CTC or the Dependent Tax Credit, please contact our NYC CPA firm for assistance.