Whether you have one, two, three, or more, there's no question about it: Children are very expensive. Thankfully, there are a number of tax breaks designed to ease the burden on parents. One such example is the Child Tax Credit, which, for the 2017 tax year, is worth up to $1,000 per qualifying child in your household under age 17.
Now you may have heard that the Child Tax Credit looks different today as the result of tax reform, and you'd be correct. The value of the credit has increased to $2,000 for the 2018 tax year, and the income thresholds at which it phases out have risen tremendously. That said, unless you're a low to middle earner, there's a good chance you won't get to claim the Child Tax Credit this year, but rather will have to wait until the following year to benefit from it.
How tax credits work
When we think about tax breaks, we tend to lob tax credits and deductions into the same category, when in reality they're very different beasts. A tax deduction works by exempting a portion of your income from taxes, and your savings is based on your effective tax rate. So if you snag a $4,000 deduction, and your effective tax rate is 25%, that translates into $1,000 of actual savings.
A tax credit, on the other hand, is a dollar-for-dollar reduction of your tax liability, and your associated savings aren't dependent on your effective tax rate. In other words, a $1,000 tax credit is worth $1,000 to someone making $50,000 and someone making three times that amount -- which is why credits are so lucrative.
Claiming the Child Tax Credit this year
To claim the Child Tax Credit this year -- meaning, on your 2017 return -- you must have at least one child in your household under age 17 who was born before 2018. Furthermore, to get the credit in full, your income for 2017 can't exceed:
- $75,000 if you're a single filer.
- $110,000 if you're a married couple filing jointly.
If your income does surpass these thresholds, you'll face a $50 reduction in your credit per $1,000 of excess income, until the credit is wiped out completely. In other words, if you're married filing jointly with one child, and your 2017 income equals $130,000 or more, you won't get any money out of the credit.
Claiming the Child Tax Credit after this year
While countless Americans will no doubt remain ineligible for the Child Tax Credit as it applies to 2017, there's good news: Effective 2018, the income thresholds for eligibility have increased to:
- $200,000 for single tax filers.
- $400,000 for married couples filing jointly.
That means even if you can't claim the credit this year on your 2017 return, there's a good chance you'll get to capitalize on it next year. Furthermore, if you're expecting this year, you'll get to claim the credit for that child on your 2018 return provided he or she is born by Dec. 31.
Remember, the Child Tax Credit is only one of many tax breaks available to parents, so even if you don't get to claim it right away, there may be other deductions or credits you're eligible for. And given the cost of raising kids these days, it pays to get your hands on as much money as you can.