There are endless benefits to having children. They bring happiness and joy to your life, give you the opportunity to relive your childhood through their eyes and ensure that your family lineage continues another generation. However, kids can be quite expensive, which is why Uncle Sam usually gives parents a break during tax season.
In December 2017 the new Tax Cuts and Job Act (TCJA) was signed into law, instituting a new Child Tax Credit that will most likely put a smile on your face when it comes time to pay your annual taxes in 2019.
Under the new plan, the amount you can claim for each qualifying child under the age of 17 has doubled from $1,000 to $2,000. If one of your dependents fails to qualify for the credit, you can still claim up to $500 for them as well.
Then there is the maximum Additional Child Tax Credit (ACTC), a refundable tax credit given to you if your Child Tax Credit is more than the total amount of income tax you owe. This has increased by $300, from $1,100 to $1,400. It also changes eligibility, as the new plan increases the income threshold to $200,00 for independents and $400,00 for those filing jointly.
Good news, right? But before you start spending all of that potential money you might save, you might want to read the fine print.
The new plan specifies the monetary amount as a refundable credit — not a deduction. This means that you might not get cash back and that your credit could be used to pay taxes owed. Basically, unless you owe less than the tax credit is worth, you aren’t going to pocket any cash.
Another not-so-great aspect of the new plan? Personal exemptions have been eliminated and you will be forced to stick to a standard deduction.
Also, taxpayers who are using Individual Taxpayer Identification Numbers are going to have to use Social Security Numbers for every child in order for them to qualify for the credit. This is aimed at reducing the amount of undocumented immigrants making claims.
This tax credit expires in 2025, so if you do save some extra money this tax season, enjoy it. However, you might want to wait until April to see how it will impact your family!