We all know raising kids is expensive, but due to changes from the Tax Reform, you can get some more money back in the form of a tax credit.
Here are a few things you should know heading into tax season to make sure you are taking full advantage of this credit.
Carl Carlson, CEO of Carlson Financial said the child tax credit doubled – it used to be $1,000 per child and now it’s $2,000 per child. Additionally, the number of people who will be able to claim the credit has been expanded. Previously, if you were single making over $75,000, or married making over $110,000, the IRS would decrease or even eliminate the amount of credit you could claim. Now single filers can make up to $200,000 and married filers can make up to $400,000 before this starts to be reduced. More people will be able to claim the credit, and at a higher amount, Carlson said.
They did get rid of the personal exemption so an additional $1,000 in tax credit is going to make up for the loss of a $4,050 exemption.
Carlson said a $1,000 tax credit is more valuable than a $4,050 tax exemption, and here’s why: The exemption was used to reduce the income that someone would get taxed on. A tax credit, on the other hand, reduces the actual tax liability, dollar for dollar.
Other credits one might claim is a new $500 “credit for other dependents.” This might be someone like an aging parent or adult child whom you care for. Of course, the IRS has strict definitions on who may qualify for this credit – you can’t help out your unemployed friend and hope to get a credit for that on your tax return, Carlson noted.
Limits on who can use the child tax credit say you must be claiming the child as a dependent to get the credit. We already discussed the income limitations.
Lastly, your child must have been 16 or younger on the last day of that tax year. At age 17, you might still get the $500 credit for other dependents, but not the full $2,000, so pay careful attention to their age, Carlson said.