The 2017 Federal Child Tax Credit
These rules apply in 2017, but they change in 2018
Parents and guardians who can 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.
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 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.
You might be able to take heart in 2018 even if your child doesn't meet all these rules. You won't qualify for the Child Tax Credit, but it's possible that you might be eligible for the new $500 Family Tax Credit that goes into effect in 2018 under the terms of the Tax Cuts and Jobs Act (TCJA), passed in December 2017. The rules are similar to the Child Tax Credit but they apply to older dependents.
Also beginning in 2018, your child must have a valid Social Security number at the time you claim the credit. You have some leeway with this in the 2017 tax year, however. You can still claim the Child Tax Credit retroactively for 2017. This gives you some time to get that Social Security number.
Another Effect of the Tax Cuts and Jobs Act
Yes, the Child Tax Credit was tweaked by this legislation, as were numerous tax provisions. But unlike some other tax breaks, the Child Tax Credit survived, and it actually gets better going forward—at least through 2018 when the TCJA potentially expires. The new tax law increases this credit to $2,000 in 2018, although not all taxpayers will qualify for this much.
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.
Phaseouts are based on your modified adjusted gross income (MAGI), not your gross income. Many taxpayers find that their MAGIs are the same as their adjusted gross incomes found on line 37 of the 2017 Form 1040, but check with a tax professional if you're unsure.
Now here's some more good news, at least for higher-income families. These income thresholds increase significantly as the calendar flips over to 2018 thanks to the TCJA, to $400,000 for married taxpayers who file joint returns and $200,000 for all others.
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 non-refundable 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 credit 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.
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
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.
Remember, these rules apply only to the 2017 tax year. Beginning in 2018, the TCJA eliminates the Additional Child Tax Credit...but it makes up to $1,400 of the Child Tax Credit refundable on similar terms.
So, yes, raising kids can be expensive, but the tax code has your back.