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This $2,399 Tax Break Is Heading Higher in 2018

By Dan Caplinger - Updated Dec 28, 2017 at 4:19PM

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Many families will get a big boost in tax savings by using this popular credit. Find out if you're one of them.

The recently passed tax-reform bill promises to make many changes to the tax laws, with the intent of helping the average American pay less in taxes. One key component of the savings that the new tax law aims to provide is in its provisions concerning families.

Although tax reform took away personal exemptions, it increased the standard deduction. Most importantly for families, lawmakers doubled the size of the child tax credit, which tens of millions of families use to produce substantial savings on their returns. Now, as you'll see below, even more people will be able to use the child tax credit in 2018 and beyond.

How the average American family saves thousands with the child tax credit

Tax laws are rarely simple, but the child tax credit is as simple as a tax provision can be. Every child who's eligible under the terms of the credit qualifies for a $1,000 tax break. To qualify for the credit in any given tax year, the child in question must be no older than 16 as of the end of the year, and you must be able to claim the child as your dependent on your tax return. An eligible child must live with you more than half the year, and you need to provide at least half of the child's financial support.

Eligible children must also be related to you. However, the credit is available for those other than parents, as the law respects situations in which siblings, grandparents, or other relatives are responsible as primary caregivers and providers for children.

Clockwork gears nested together, with one having Tax Reform engraved on the side.

Image source: Getty Images.

Almost 22.4 million tax returns included claims for the child tax credit in the most recent year for which IRS data is available. The amount that those taxpayers saved added up to almost $27.1 billion, working out to an average of $1,211 per family.

However, there's another aspect of the tax laws governing tax credits and children. For most credits, if you don't owe enough in taxes to use up the credit, you simply lose it. But a provision called the additional child tax credit allows you to get a refund for certain amounts that would otherwise be lost.

Those who have $3,000 or more in earned income from wages, salaries, or similar work-related sources can claim the additional child tax credit. About 19.7 million out of the 22.4 million returns mentioned above claimed this additional credit, adding another $26.6 billion. When you combine those two amounts, you get an average savings of $2,399.

3 reasons why your child tax credit could get a lot bigger in 2018

Tax reform focused a lot of attention on the child tax credit, and several changes will make it a bigger part of tax preparation for more taxpayers. Three provisions, in particular, will give more people a tax break from the credit.

First and foremost, tax reform doubled the amount of the basic child tax credit. In 2018, you'll be able to claim $2,000 in tax credits for each eligible child.

Second, the amount of money available as a refundable credit will rise. The new maximum of $1,400 will represent a $400 boost from current law. In addition, families will only need $2,500 in earned income to qualify, down from $3,000.

Finally, the income levels at which the child tax credit phases out will go up dramatically, making more taxpayers eligible. The chart below shows the income levels that applied previously, along with the new amounts:

Filing Status

Old Law Income Threshold Where Phase-out Began

New Law Income Threshold Where Phase-out Begins

Single, Head of Household, or Qualifying Widow(er)

$75,000

$200,000

Married Filing Jointly

$110,000

$400,000

Married Filing Separately

$55,000

$200,000

Data source: IRS, tax-reform bill text.

Under the phase-out rules, taxpayers lose $50 in total child tax credits for every $1,000, or part thereof, in modified adjusted gross income above the threshold amounts. The boost means that joint filers making between $110,000 and $400,000 will now be eligible for full credits where partial or no credit was available under previous law.

Take another look at the child tax credit in 2018

Because of these changes, it's important for those who have kids to see if the new child tax credit provisions will start saving you taxes next year. If you qualify, the child tax credit can be one of the biggest tax breaks you'll have in 2018 and beyond.

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