The 2017 Federal Child Tax Credit
These rules apply in 2017, but they change in 2018
Parents and guardians who are eligible to claim their children as dependents for tax purposes are eligible for several tax credits. One of these is the Child Tax Credit, worth up to $1,000 per child for the 2017 tax year.
The Effect of the Tax Cuts and Jobs Act
You've almost certainly heard that the U.S. Congress and President Donald Trump changed innumerable tax provisions when the Tax Cuts and Jobs Act passed in December 2017.
And yes, the Child Tax Credit was tweaked by this legislation. But unlike some other tax breaks, this credit survived. It did not go away. It's still available in the 2018 tax year, but with different rules.
The rules summarized here apply to the credit you can claim for 2017.
Qualifying for the Child Tax Credit in 2017
The rules for the Child Tax Credit generally mirror those for claiming children as your dependents, but there are some subtle differences. Qualifying children for the Child Tax Credit must meet all nine of these rules:
- The child is related to you. He's your son, daughter, stepchild, foster child, adopted child, brother, or sister. He can also be a descendant of any of these relatives, such as a grandchild, nephew, or niece
- The child lived with you for more than half the year.
- The child was younger than age 17 on the last day of the year. This means that he hadn't yet celebrated his 17th birthday by December 31, 2017. This is different from claiming him as a dependent. Children up to age 19 can qualify as dependents, or even age 24 if they're full-time students.
- The child did not provide more than half his own financial support during the tax year.
- The child is a citizen or a resident alien of the United States.
- The child is younger than you.
- The child does not file a joint tax return with his spouse if he's married, although there are some exceptions to this rule. Check with a tax professional if your child is married and is planning to file a joint return, but this circumstance is admittedly rare.
- You're eligible to claim the child as your dependent.
- You are the child's parent, or your adjusted gross income is higher than the adjusted gross income of either of his parents.
Income Limitations and Phaseouts
Like some other tax credits, the Child Tax Credit is gradually reduced as a taxpayer's income increases. This "phaseout" begins with the following thresholds:
- $55,000 for married couples who file separate returns
- $75,000 for single, head of household, and qualifying widow(er) filers
- $110,000 for married couples who filing jointly
The child tax credit is reduced by $50 for each $1,000 that your income exceeds these thresholds. For example, if you qualify for head of household filing status and you earn $76,000, your child tax credit would drop from $1,000 to $950 because you lose $50 for the additional $1,000 you earned over $75,000.
It's a Non-Refundable Credit ... Sort Of
A non-refundable tax credit can only reduce or eliminate your tax bill. For example, if you owe the IRS $2,000 and you can claim a $1,000 tax credit, you'd only have to pay the IRS $1,000. If you owe only $1,000 in taxes, you wouldn't owe the IRS anything at all—the credit would erase your tax debt entirely.
Now here's the bad news.
If you owe the IRS only $500, you wouldn't have to pay anything because your $1,000 will wipe the bill out. But the IRS won't send you a refund for the remaining $500, either ... because the credit is non-refundable.
The Child Tax Credit is technically non-refundable, but there's another credit available called the Additional Child Tax Credit and this one is refundable so you might get some money back.
The Additional Child Tax Credit works as something of an offshoot of the original Child Tax Credit. If you have one or two children, applying the Additional Child Tax Credit can result in receiving a refund equal to the unused portion of your Child Tax Credit—that which wasn't used to erase your tax bill—or 15 percent of your income over $3,000, whichever is less. Claiming the Additional Child Tax Credit effectively works out so that the unused balance of your child tax credit, or at least a portion of it, becomes eligible for a refund.
If you have three or more children, an additional rule applies. The refundable portion of the Additional Child Tax Credit is the smaller of the unused portion of your Child Tax Credit or 15 percent of your earned income over $3,000, or the total of the Social Security and Medicare taxes you paid in over the year minus the amount of the earned income credit.
So, yes, raising kids can be expensive, but the tax code has your back.