If you’re a parent, you may remember filing your taxes the year after your first child was born. Did you get excited about claiming a dependent on your tax return for the first time? Guess what: the Tax Cuts and Jobs Act doubled the tax credit to $2,000 for each dependent. Up to $1,400 of that credit may be refundable for each qualifying child. That means that if you don’t owe on your taxes for 2018, up to $1,400 may be added to your refund for each one of your children. Parents with lots of little ones at home, this is your big moment!
As with almost everything about life (and taxes), there’s a catch. Your child dependents need to be 16 years of age or younger on December 31, 2018, in order to qualify. If you have older teenagers at home who qualified as child dependents last year, you’re going to see a significant difference in your tax credits when you file your return this year.
That’s right: your teen or young adult child may still depend upon you financially, but you can’t claim the $2,000 per child credit if they’re over the age of 16. However, you do have another option. There’s a new credit covering other dependents, which is a non-refundable tax credit of up to $500 per qualifying dependent, age 17 or older. High school juniors and seniors, college students, and disabled adult children can all fall under this credit. In fact, if you have elderly parents that you care for in your home, you can claim them as other dependents too. The other dependents credit is a brand-new credit for 2018.
Both of these credits phase out if your modified adjusted gross income is above $200,000 for individuals or $400,000 for married couples filing jointly. Those phase-out levels are significantly higher than the 2017 levels (which were $75,000 and $110,000 respectively).
We know a lot of you are feeling confused with the new tax regulations, particularly with respect to the differences with taking the standardized deduction versus itemizing. It’s worth noting that the child tax credit has nothing to do with whether you take the standard deduction or itemize. It is all about dependency.
If you’re a parent or caretaker of dependents and under the income thresholds, you can look forward to the child and/or other dependent tax credits when you file your return for 2018. If you have any questions, please don’t hesitate to contact us.