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Under new law, the more children you have, the more you can potentially lower your tax liability. The Tax Cuts and Jobs Act of 2017 (TCJA) made a significant change to the child tax credit to increase the amount of credit one family can take on their tax return. This change will ultimately allow more families with children under the age of 17 to take a larger credit which will, in turn, decrease their tax liability. Let’s take a look at the child tax credit changes we will be expecting to see in the upcoming 2018 tax season.

What is the Child Tax Credit?

The 2017 tax year, prior to the changes of the tax act, offered a $1,000 maximum child tax credit for each qualifying child. The new tax law doubles the amount to a maximum of $2,000 for each qualifying child, with a maximum refundable portion of $1,400. The refund is available to those who qualify for the full amount of the child tax credit and whose tax liability is less than that maximum amount. For example, if a taxpayer qualifies for the maximum child tax credit of $2,000 and has a tax liability of $600, he or she can be refunded the remaining $1,400. The refunded portion of the credit is known as the “additional child tax credit”.

Filing status also has a role to play in determining the child tax credit. The TCJA has increased the income threshold for which the tax credit begins to “phase out”. If a taxpayer makes over a certain amount of income, some portion (if not all) of the credit is no longer available to the taxpayer. The income threshold under the new tax law is $200,000 for single filers and $400,000 for married filing jointly. The tax law prior to the TCJA had income thresholds of $75,000 for single filers and $110,000 for married filing jointly. Increasing the income threshold allows more families with children to be eligible to take the full amount of the child tax credit on their tax return.

Does My Child Need a Social Security Number to Qualify?

The TCJA requires each child to have a social security number before the tax filing date in order to qualify for the child tax credit and the additional child tax credit. Children who have an Individual Taxpayer Identification Number (ITIN) will not qualify for the credit. When a child goes through the process of becoming a U.S. citizen or permanent resident, his or her social security card may read, “Not valid for employment”. If this occurs, the Social Security Administration can be notified and a new card will be issued so that the child becomes a qualifying child. If a child does not have a social security number, he or she may be able to take the qualifying dependent credit, which allows each qualifying person a $500 non-refundable tax credit.

Children may not be exactly like tax credits, but they can provide tax benefits to you in the upcoming 2018 tax season. Being aware of these changes can have the opportunity to increase your family’s tax benefit and decrease your tax liability. If you have any questions regarding these changes or any other tax matters, please do not hesitate to contact your L&B professional at (858) 558-9200.

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