The implementation of the Tax Cuts and Jobs Act bill introduced changes to the Child Tax Credit in 2019. Those changes include the following:
1. The amount of the Child Tax Credit increased from $1,000 to $2,000 per qualifying child. The refundable part of the Child Tax Credit (known as the Additional Child Tax Credit) increased from $1,000 to $1,400 per qualifying child.
Let’s look at an example. Chris and Virginia are married filing jointly with one qualifying child. This means that they have a Child Tax Credit of $2,000. They claimed the wrong number of allowances for their family size and underpaid their taxes, now owing $500 in taxes. The Child Tax Credit reduces their tax liability to $0 and leaves $1,500 leftover. Since the Additional Child Tax Credit says you can only receive up to $1,400 per qualifying child, Chris and Virginia will receive $1,400 in credit (not $1,500).
The new law also offers a $500.00 non-refundable credit for qualifying dependents not listed as qualified children. This means that you can apply up to $500 towards your tax liability for your 17-year old dependent.
2. The phase-out limit increased from $110,000 to $400,000 for joint filers and from $75,000 to $200,000 for single filers. The phase-out limit is based on your MAGI (not cousin Maggy), your Modified Adjusted Gross Income. This means that once your MAGI hits the phase out-out limit, the credit begins to decrease.
3. Qualifying children are required to have a social security number that allows them to work in the United States to claim the credit. Children with ITIN numbers that resided in the United States could previously take the credit.
If you found this helpful, then be a good friend and share this post with your fellow parents out there. And stay tuned for our next post on the Earned Income Credit.