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Tuesday, January 30, 2018

What Every American Should Know About the 2018 Child Tax Credit Changes


The recently amended GOP tax bill has brought about a lot of major changes in the United States' individual tax laws in the 2018 tax year. One of the significant changes is in the Child Tax Credit that would greatly affect parents and guardians with children below 17 years old.
One of the changes made was the amount of tax credit that can be claimed per qualifying child. From $1,000, the newly reformed bill doubled the amount to $2,000. Which means if you have one child, the tax credit you will get is $2,000, if you have two children, $4,000, and so on. The tax credit, which is different from tax deduction that reduces the income subject to tax, will be deducted from the tax bill dollar-for-dollar.

More of this tax credit has also been made refundable. Unlike before that the Child Tax Credit was nonrefundable which can only be used to deduct to the taxpayer's bill, now it has more refundable credits of up to $1,400 that can be claimed even if the taxpayer ends up with no liability at all. For instance, if you have $1,000 calculated tax for the year and you have $1,400 refundable credits, you can reduce your tax bill to zero and still get that extra $400. This would very much benefit especially low-income Americans.

Another notable change is the adjustment of income qualification. In the past tax year, the credit benefits mostly low- to middle-income households. But with the reformed bill, there was an increase in the phaseout thresholds that makes the credit available to more thresholds. For example, for those married filing jointly, the maximum AGI for full credit is $400,000 and the credit gets removed from an AGI over $440,000. Moreover, for those single, head of household, and married filing separately the maximum AGI for full credit is $200,000 and the credit gets removed from an AGI over $240,000.

There will also be $500 nonrefundable family credit for every other dependent. These dependents might be the aging parents or children 17 years old or above that you still provide support.

Although the aforementioned changes in the Child Tax Credit seem good, it does not change the fact that taxpayers are still losing the personal exemption. The increase in the deductions does not even equal the loss of taxpayer's personal exemption. But when it comes to the number of dependents, the new higher child tax credit would be an advantage.

For more information about tax credits, visit the official IRS web site at www.irs.gov/credits-deductions-for-individuals


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