The Family Tax Benefit is an initiative that allows low-income families to raise kids without facing financial issues. There have been plenty of changes in the 2018 tax laws and regulations. There is both good news and bad news for families. The House and Senate approved twice as big of a tax credit per child than the previous year. Other changes actually alter the impact of this family tax break.
Here is all you need to know about the new child tax credit laws.
The New Tax Cuts and Jobs Act
Per the new tax credit and jobs act, the new child tax credit will be increased from $1000 to $1600 per child. The maximum amount refundable will still be limited to the current level, i.e., $1000. The good thing is that this maximum refundable amount is now tied to the CPI (Chained Consumer Price). This means that it will rise as the prices increase over time, until it reaches the $1600 over time.
The same bill adds a new $300 tax credit for dependent parents or other non-child dependents on a family. There is no particular code about when the child was born. Even if the child was born on the 31st of December, you could avail credit for the entire year.
What Is Child Tax Credit?
CTC is an important part of Family Tax Credit. A $1600 tax credit means that you can get up to $1600 reduced on your taxes. The actual amount reduced depends on your income. In true sense, it isn’t actually a deduction, but a credit. The amount you owe the IRS is reduced, but if the credit is more than what you owe, you won’t get a refund on the remaining amount.
Who Is Eligible for Child Tax Credit 2018?
Not all families and parents can avail the CTC. Married couples can avail the credit if their combined annual gross income is around $230,000. For parents filing separately, it should be around $55,000. For a single parent, the annual gross income limit is $115,000.
Moving on from the income limitation, the child should also fulfill the following criteria.
- The child should be under the age of 17. Any child who turns 18 is not eligible for CTC, even if the birthday falls on the last day of that year.
- The child must be claimed as a dependent on the tax return form.
- The child must not be a contributor to the overall income of the household.
- If the child has provided over half of their own support for the year, they aren’t eligible.
The Additional Child Tax Credit
While CTC is non-refundable, there is a part of it that can be refunded now. This part is merged with the CTC and called the Additional Child Tax Credit. Families can be eligible for this tax credit even if they do not owe the IRS anything. However, there must be some earned income in the form of salary, wages, or even tips. The refundable portion is around 15 percent of the total earned income.
While the changes in the family tax credit aren’t too bad, the new code has definitely made the whole process more complicated. The credit can be claimed through Federal form 1040, 1040NR, or federal form 1040N. It cannot be filed through the form 1040 EZ.
The new tax credits will remain in place until 2025.
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