The New Law Re Dependent Deduction and Child Tax Credit

IMPACT OF NEW TAX LAW ON CHILD DEPENDENT DEDUCTION

AND CHILD TAX CREDIT

What is the difference between the child tax credit and a dependent exemption? The exemption will directly reduce your income. The credit will reduce your tax liability. child support

A dependent exemption is the income you can exclude from taxable income for each of your dependents. In 2017, you can exclude $4,050 for each dependent. taxes

The child tax credit is a credit that offsets the tax you owe dollar for dollar, is available if you have a child younger than age 17 at the end of the year, and can reduce your tax by as much as $1,000, (2003 - 2017, through the Working Families Tax Relief Act) for each qualifying child.

You can only claim the child tax credit if you also claim the child as a dependent. If you meet the requirements, you can claim an exemption for a dependent on your return and the child tax credit for that dependent.

In 2018 and forward, the income limits for the child tax credit have changed significantly under the new tax law. The new Tax Cuts and Jobs Act (TCJA) includes a number of changes that affect families. Here are some of the big ones.

  • No more personal and dependent exemption deductions
  • For 2018-2025, the new law eliminates personal and dependent exemption deductions, which would have been $4,150 each for 2018 under prior law.
  • For various tax provisions that make reference to persons for whom dependent exemption deductions are allowed (such as the eligibility rules for head of household filing status, the child and dependent care tax credit, the education tax credits, and child-related tax breaks for non-custodial parents after divorce), the dependent exemption deduction is still deemed to exist for 2018-2025. It is just equal to zero.  tax considerations
  • There is a larger standard deduction. For 2018-2025, the TCJA almost doubles the standard deduction amounts. The 2018 standard deductions are as follows.

$12,000 for singles (up from $6,350 for 2017)

$24,000 for joint-filing married couples (up from $12,700)

$18,000 for heads of households (up from $9,350)

Taken together, the elimination of dependent exemption deductions and bigger standard deductions obviously helps some families and hurts others. For instance, non-itemizers with no kids will come out ahead while those with lots of kids who don't benefit from increased standard deductions will draw the short straw.

There are more generous child tax credit rules under the new law. For 2018-2025, the TCJA increases the maximum child credit to $2,000 per under-age-17 qualifying child (up from $1,000 for 2017). Up to $1,400 can be a refundable credit, which means you can collect that amount even if you don't owe any federal income tax. In addition, the income levels at which the child tax credit is phased out are significantly increased for 2018-2025, so many more families with under-age-17 children will now qualify. Specifically, the adjusted gross income (AGI) threshold for the child credit phase-out rule for 2018-2025 is $400,000 for married joint-filing couples and $200,000 for all others. Under prior law, the thresholds were much lower: $110,000 for married joint-filing couples, $75,000 for unmarried individuals, and $55,000 for those who use married filing separate status. Under the phase-out rule, $50 of child tax credit is phased out for every $1,000 of AGI above the applicable threshold. Any portion of $1,000 of excess AGI counts as a full $1,000 of excess AGI.

For 2018-2025, the TCJA establishes a new $500 credit for dependents who are not under-age-17 children who qualify for the $2,000 child credit. For example, qualifying dependents can include: (1) a dependent child who lives with you for over half the year and is over age 16 and up to age 23 if he or she is a student and (2) a host of non-child relatives (grandchild, sibling, stepbrother, stepsister, father, mother, grandfather, grandmother, stepfather, stepmother, niece, nephew, uncle, aunt, son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, sister-in-law, and others).

Lasiter and Jackson attorneys can assist you in making sure that your court orders give you all of the tax benefits to which you are entitled in the event of a divorce or child custody case.

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