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December 26, 2018

Tax Reform for Individuals: Child Tax Credit Changes

Parents and taxpayers with dependent children can take advantage of the increased benefits of the Child Tax Credit under tax reform. With new changes in effect, this tax credit has been enhanced and made available to more individuals.

Previous Law

Under prior law, individuals could claim a credit of $1,000 per qualifying dependent child under age 17 at the end of the year. The adjusted gross income thresholds for taxpayers were $110,000 for joint returns and $75,000 for single taxpayers, so many taxpayers were completely phased out of the credit.

New Law

The new tax law has increased the credit to $2,000 per qualifying child. Additionally, $1,400 of this credit will be refundable for each qualifying child, compared to only $1,000 under the old law. The law also created a new non-refundable credit for non-child dependents of $500 each. This credit can be used for dependents including children 17 and above, parents and disabled dependents who were previously ineligible.

The credit has new modified adjusted gross income thresholds of $400,000 for joint returns and $200,000 for single taxpayers, which dramatically increases the number of taxpayers eligible for the credit. After these thresholds, the credit is reduced by $50 for every $1,000 that income exceeds the threshold.

Impact on Individuals

Personal exemptions have been eliminated under tax reform, so the enhancement of this credit helps ease that burden. This credit is highlighted as a provision that will help lower the tax liability for middle-class families. Additionally, the Child and Dependent Care Tax Credit, which helps families recuperate some of their expenses from daycare, after school care or summer camps, remains unchanged in this bill.

Contact an Anders advisor with questions on how the new tax law will affect you.

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