The New Child Tax Credit

October 03, 2019 : Gil Charney

Editor’s Note: This article was originally published on December 28, 2017.

 

The Tax Cuts and Jobs Act (TCJA) was signed into law at the end of 2017. One of the tax reform changes includes a new child tax credit. While the credit is not technically new, there are updates to the provision. Here we outline the history of the credit and how you’ll claim your qualifying children for 2019.

The child tax credit, or CTC, was introduced by 1997 legislation and was first available in 1998. It started as a small, nonrefundable credit of $400 for each qualifying child under 17. In the last 20 years, it has undergone many changes. Under pre-TCJA law, the CTC was worth up to $1,000 per qualifying child, was refundable for taxpayers with earned income of at least $3,000, and phased out (decreased) for taxpayers with modified adjusted gross income (MAGI) above $75,000 ($110,000 for joint filers).

What Changes You Should Know About the Child Tax Credit in 2019

Under the Tax Cuts and Jobs Act (TCJA) the following new child tax credit rules went into effect in 2018 and apply to 2019 tax returns:

  • The Child Tax Credit under tax reform is worth up to $2,000 per qualifying child. The age cut-off remains at 17 (the child must be under 17 at the end of the year for taxpayers to claim the credit).
  • The refundable portion of the credit is limited to $1,400. This amount is subject to inflation adjustments but remains at $1,400 for 2019.
  • The earned income threshold for the refundable credit is lowered to $2,500.
  • The child must have a valid SSN to qualify for the $2,000 Child Tax Credit.
  • The beginning credit phaseout for the child tax credit increases to $200,000 ($400,000 for joint filers). The phaseout also applies to the new $500 credit for other dependents.

Child Tax Credit Phaseout Example

The credit phases out by $50 for each $1,000 of MAGI over the threshold. To illustrate how the child tax credit phaseout works, let’s say a married couple’s income is $410,000 and they have one child. Because their income is over the phaseout threshold, the amount of the child tax credit they could take would be reduced to $1,500.

  • $410,000 – $400,000 = $10,000
  • $10,000 ÷ $1,000 = 10
  • $50 × 10 = $500 phaseout amount
  • $2,000 – $500 = $1,500 child tax credit

How Tax Reform Affects the Child Tax Credit: New Eligibility Definitions

Prior to the TCJA, the taxpayer who was eligible to claim the child’s dependent exemption was also the one eligible to claim the CTC. In turn, the taxpayer and child had to meet several “tests” for the one to be considered the dependent of the other.

The TCJA eliminates the dependent exemption itself but retains the definition of dependent to claim the new child tax credit and other child- or dependent-related tax benefits. For Child Tax Credit reform purposes, this will usually mean that the child must be related to the taxpayer in one of several ways (son, daughter, grandchild, etc.), must live in the taxpayer’s home more than half the year, and must not provide more than half of his or her own support. Special rules apply if the parents are divorced or legally separated.

As under previous law, strict due diligence requirements apply for tax professionals who prepare returns with the refundable Child Tax Credit. All changes to the new Child Tax Credit expire after December 31, 2025.

Questions About Tax Reform and New Child Tax Credit?

To learn more about how your taxes may have changed, visit our tax return and tax reform calculator. For more information or for advice about the child tax credit changes and claiming dependents, make an appointment with one of our tax professionals who can help you.

Related Topics

Avatar

Gil Charney

Gil is the Director of Tax Law and Policy Analysis for The Tax Institute at H&R Block.

Related Resources

Form 1099-INT, Interest Income

If you receive $10 or more in interest, you will receive a Form 1099-INT showing the amount you received and taxes withheld. Learn more from H&R Block.

What Can I Do If the IRS Has No Record of My Tax Return?

Find out what you can do if IRS says they have no record of receiving your tax return. The tax experts at H&R Block explain your options.

How to Fill Out The Personal Allowances Worksheet (W-4 Worksheet) for 2019

Find out how to fill out the W-4 worksheet to calculate your personal allowances. H&R Block’s tax pros help answer your tax questions.