9 Facts About the Credit for Other Dependents and the Child Tax Credit for 2019
It’s been more than a year since the Tax Cuts and Jobs Act (TCJA) was passed. Now that filing season for the 2018 tax year is here, it’s time to see how the new law will affect your filing. You may already know that tax reform altered the tax landscape for nearly everyone—changing or eliminating some rules and provisions, but also creating new ones.
If you have children or other dependents, you’ll want to be familiar with two items in particular: the changes to the Child Tax Credit and the new Credit for Other Dependents. The Child Tax Credit has been around for about 20 years, but has changed over time. On the other hand, the Credit for Other Dependents is a brand new personal tax credit created as a part of the recent tax reform.
Here are nine things you should know about each of these credits as you start to file your taxes.
Changes to the Child Tax Credit
The Child Tax Credit is a tax credit available to taxpayers for each of their qualifying dependent children or other family members.
You can get more from the credit than in the past. The credit is now worth up to $2,000 per qualifying child, double the previous amount. The age limit for the Child Tax Credit is 16 years old, meaning your child must have been 16 or younger on12/31/18.
A portion of the credit is refundable. Prior to tax reform, the Child Tax Credit was not refundable. You could have used it to lower your tax bill, but if any amount was left over after your tax bill was reduced to $0, the rest of your credit was essentially lost. Now up to $1,400 of the credit is refundable. That means, you could receive money back. That means, if your overall tax liability is $600 and you receive the full $2,000 Child Tax Credit, your owed tax would be reduced to $0, and then you'd receive the remaining $1,400 in the form of a tax refund. Keep in mind, the refundable amount will be adjusted for inflation, so it could increase in future years.
More families can take advantage of the credit. With the new rules, if you’re a married couple filing jointly, you can have an adjusted gross income (AGI) of up to $400,000 (up to $200,000 if you use any other filing status) before the credit starts to phase out, meaning it gradually reduces as your AGI goes up. Previously, the credit started to phase out beginning at an AGI of $110,000 for joint filers ($75,000 for all other filing statuses).
Additionally, with the passage of the TCJA, you can only qualify for the Child Tax Credit if you have a minimum of $2,500 in earned income (such as money earned from a job or a small business). Under the previous rules, that minimum was $3,000.
The child must have a valid Social Security number (SSN). In the past, you could have claimed the credit retroactively if the child or dependent didn’t have their SSN on the tax return due date.
Credit for Other Dependents—What’s Important
The Credit for Other Dependents is tax credit available to taxpayers for each of their qualifying dependents who can’t be claimed for the Child Tax Credit.
You can get $500 for each qualifying dependent. Also known as the Family Tax Credit and the Non-Child Dependent Tax Credit, the 2018-established Credit for Other Dependents can help many taxpayers. As long as your dependents meet the criteria described here, you’ll be able to receive a $500 nonrefundable credit for each person. Be sure to claim the credit on line 12 of the 2018 Form 1040.
The credit can be used for older children, relatives, and even non-relatives. If you have a qualifying child between the ages of 17 and 23 still in school, you can claim the credit. You can also use the credit for a qualifying relative, which could be a parent, grandparent, uncle, aunt, or other relatives. Have someone that lives with you as a member of your household who is not a relative? They might qualify as a dependent if they meet the other requirements described here. This aspect of the credit is the reason why it’s known to some as the Non-Child Dependent Tax Credit.
You are providing at least half of your dependent’s support for the year. This includes food, shelter, clothing, etc. Let’s say your niece lived with you all year. Her expenses total $6,000. She pays for $2,500 from a part-time job, and you pay the other $3,500. Because you are providing over 50% of her support, your situation would pass the support test.
Your dependent can only earn a limited amount of income. To be able to claim the credit, your dependent can’t have earned income above $4,150 for 2018. This number will likely change in future tax years to account for inflation.
This credit doesn’t require a valid SSN. If your dependent has an Individual Taxpayer Identification Number (ITIN) or an Adoption Taxpayer Identification Number (ATIN) and is a U.S. citizen or U.S. resident, you’ll still be able to claim this credit.
What Else Should You Consider?
As we’re discussing dependents, you might be wondering about dependent exemptions. If you’ve claimed dependents in the past, you’ve likely claimed an exemption for them. However, under the TCJA, personal and dependent exemptions have been eliminated.
Does the elimination of personal exemptions mean you’ll owe more in taxes? Well, that brings up an important point about tax reform. Because the law affected so many aspects of taxes, you’ll have to look at the larger picture to know where you stand.
For example, the new tax brackets and rates are generally lower and broader than in the past. Additionally, with tax reform the standard deduction has been nearly doubled, meaning that more people are expected to claim it instead of itemizing their deductions.
How Will these Credits and Tax Reform Affect You?
To get an idea of what all of the changes mean to you, check out H&R Block’s tax calculator. Within a few minutes, you’ll be able to determine an estimate of your refund or how much you might owe.
As part of our partnership with H&R Block, Mike Slack, JD, EA and senior tax research analyst at The Tax Institute at H&R Block will be providing insight on various topics throughout tax season.