The Tax Cuts and Jobs Act has increased the child tax credit amount as well as thresholds when the credit phases out.

Prior Law

Through December 31, 2017

Individuals can claim a maximum child tax credit (CTC) of $1,000 for each qualifying child under the age of 17. The CTC begins to phase out for taxpayers with Modified Adjusted Gross Income (MAGI) above certain threshold amounts. The threshold amounts are as follows: $110,000 for joint filers; $75,000 for single or head of household; and $55,000 for married filing separate. The CTC is refundable to the extent of the lesser of the $1,000 credit or 15% of the taxpayer’s earned income in excess of $3,000.

New Law

Effective for tax years beginning after December 31, 2017 and before January 1, 2026

Individuals can claim a maximum CTC of $2,000 for each qualifying child under the age of 17. The CTC phase out begins at $400,000 of MAGI for joint filers and $200,000 for all other taxpayers. Unlike some of the other provisions in the tax law, this threshold amount is not indexed for inflation. Qualifying children must have a social security number in order to claim the CTC. The refundable portion of the CTC cannot exceed $1,400 per qualifying child. The refundable CTC will be indexed for inflation after the 2018 tax year. Another provision added with this tax law is a new $500 non-refundable credit for each dependent of the taxpayer other than a qualifying child. This credit may apply to a child under age 19, a full-time student under age 24, a disabled child of any age, or to other non-child relatives, if all requirements are met.

Commentary

Due to the changes in child tax credit, some taxpayers may notice a change in their net tax liability before withholding and estimated tax payments. Federal-withholding tables for wages have been updated. This will impact net paychecks for many employees. We recommended that employees revisit their withholding allowances in early 2018.

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Curt Bach
I joined Hawkins Ash CPAs in August 2010, and am currently a manager in the firm’s Medford office. I provide a variety of tax services, including trust and estate tax preparation and planning. I have more than nine years of experience providing audit and tax services to nonprofit organizations, governmental entities and small businesses. I am a member of our firm’s tax committee and not-for-profit service group.

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