Did you know the cost of raising a child to adulthood can cost you around half a million dollars? Your little bundle of joy is one of the biggest expenses in your life, and the cost of food, medical expenses, college, and even clothing can add up when raising a child. Therefore, the child tax credit was enacted in 1997 to help working families offset the cost of raising a child. However, with the passage of the Tax Cuts and Jobs Act, there have been changes to the child tax credit. Here are 3 must-know facts about the new child tax credit changes.
1. Double the Credit Amount
Great news for taxpayers that are raising a children this year! The child tax credit doubled from $1,000 to $2,000 per "qualifying child." Now you can breathe a sigh of relief about your child's future expenses.
A "qualifying child" must meet the following requirements:
The qualifying child is the taxpayer's child or stepchild, sibling, step sibling or descendant of one of these.
The qualifying child must also live with the taxpayer for more than half of the tax year.
The qualifying child is under the age of 17 at the end of the tax year.
The qualifying child did not provide more than half of their own support for the year.
2. Qualifying Relatives Covered
If a dependent does not satisfy the Sec. 24(c) definition of a qualifying child, you may be eligible for a $500 credit for a "qualifying relative." A "qualifying relative" must be related in one of the following ways.
Your child Stepchild Grandchild
Descendant of your children Son-in-law Daughter-in-law
Brother Sister Parent
Stepfather Stepmother Related by blood
Father-in-Law Mother-in-law Grandparent
Half brother Half Sister Brother-in- law
Sister-in-law Aunt Uncle
Niece Nephew Foster Child
The dependent must also meet the gross income test by having less than $4,150 in annual income. They must also pass the support test by having more than half of their support come from the person claiming the credit. Qualifying relatives cannot be a qualifying child or someone else's qualifying child.
3. Refundable Portion
If the taxpayer was unable to use the $2,000 nonrefundable credit fully, they might receive a refund of up to $1,400. However, this refund does not include the $500 credit for a qualifying relative. This refund is only for those with a qualifying child. The Tax Cuts and Jobs Act increased the refundable portion by 40% making the child tax credit more enticing and eliminating dependency exemptions. Talk to a CPA today for more information on your child tax credit refund.
The recent Tax Cuts and Jobs Act expanded the terms of eligibility, the amount credited, and a refundable portion to benefit the middle to high-income taxpayers and eliminate dependency exemptions. Whether your child is going to cost half a million dollar or more knowing these three changes to the child tax credit will help you file your next tax return.