Claiming the child tax credit is gonna get easier!
I love my dog, Shea. I think of her as my child, but she has never given me any tax benefits. If you have an actual child, you always love them, but even a little more when it’s time to file taxes. This is because you’re able to claim them as a dependent, which meant a reduction of $4,050 per child to your taxable income.
Now, enter the Tax Cuts and Jobs Act. The personal and dependent exemptions have been eliminated. The tax bill named “Tax Cuts and Jobs Act” no longer sounds like an appropriate title.
However, when a door closes, a window opens. This window is the expansion of the child tax credit (CTC). Previously, the CTC was $1,000 per qualifying child if your modified adjusted gross income is less than $110,000 for married filing joint, and $75,000 for single taxpayers.
The expanded CTC doubles the credit to $2,000 per child, and more than triples the income limitations so many people who did not get any CTC in the past will get a credit now. The new limitations are $400,000 for married filing jointly, and $200,000 for single taxpayers. After these thresholds, the credit begins to phaseout.
You may be thinking, “this sounds okay, but $4,050 is still greater than $2,000.” You’re completely right, except when talking about taxes. The $4,050 reduces your taxable income, which is then multiplied by your applicable tax rate to arrive at your total tax. The $2,000 credit, on the other hand, will reduce your tax dollar-for-dollar.
Quick example: Let’s say you have one child, and your taxable income was in the 20% bracket. The dependent exemption would be worth $810 ($4,050 X 20%). The expanded child tax credit will put an extra $1,000 in your pocket.
To claim this credit, the qualifying child must be claimed as a dependent. The term qualifying child means a child under the age of 17, and is related to you. The term related includes biological, adopted, step, and foster children, as well as any children of the beforementioned individuals. Unfortunately, I’ll have to wait, cross my fingers, and hope the next tax overhaul will allow you to claim pets.