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There are only a handful of tax breaks for parents. The Child Tax Credit is one of them. Many changes have been made to this credit under the new tax law reform for tax year 2018.
And there are some great changes as a matter of fact!
Thank goodness, right.
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What is a tax credit?
A tax credit reduces your tax liability. Remember a tax deduction reduces your taxable income. So we love those tax credits.
This is a tax credit for each qualifying child you have. Under the new law, the credit has doubled and is now as much as $2,000 per qualifying child. Meaning for each qualifying child your tax liability can be reduced by $2,000. Potentially 5 qualifying kids = $10,000 tax credit on your 1040.
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This credit used to phase-out at $110,000 for MFJ. NOW, this credit will phase-out if your AGI is over $400,000 for MFJ. So if your income is under this amount, the credit will not be reduced. Woohoo, another big win!
Also, it is now refundable up to $1,400.
What is a refundable credit?
In prior years, the credit was nonrefundable. This means credit could only reduce your tax liability to $0- it could not give you a refund. So let’s say your tax liability was $700 – the child tax credit would reduce your liability to $0 and the remaining part of the credit $300 would disappear.
Now you can get a refund up to $1,400. To calculate the amount of your potential refundable credit: (Earned income X 15%) – $2,500= refundable credit (maximum of $1,400)
This calculation is a little confusing. I would trust tax software like e-file.com or TurboTax to calculate these credits for you based on simple questions they ask about your kids. But there is potential you could get a refund for this credit.
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What is a qualifying child?
The IRS has a very handy interactive tool on there website to determine if someone qualifies. Check it out- takes just a few minutes to complete:
Quick n’ Dirty – they have to be under 17, have a SSN, live with you half the year, you have to pay half their expenses and be your child/grandchild. If you question any of these requirements for your situation – use the IRS interactive tool above.
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