Taxpayers who claim dependents on their tax returns have historically been subject to lower taxes, either through credits, exemptions or both. Prior to the Tax Cuts and Jobs Act, you could take a personal exemption for yourself, your spouse and any dependents you claimed, in addition to the Child Tax Credit. The TCJA phased out personal exemptions, however, so for the 2018 tax year through the 2025 tax year, dependents won't give you as much of a break as they once did.
For the 2018 tax year and continuing until the Tax Cuts and Jobs Act is phased out for the 2025 tax year, the only breaks you can get for dependents are the Child Tax Credit and the Credit for Other Dependents. Credits decrease the tax owed rather than the taxable income.
What Are Personal Exemptions?
In 2017 and the tax years prior, individual taxpayers could take personal exemptions every year. You could claim one exemption for yourself, one exemption for your spouse if you filed jointly and one exemption for each dependent. Unmarried parents would have to figure out which parent should claim a child on their taxes. Anyone who qualified as a dependent could be exempted, not just children.
Personal Exemptions for Dependents Example
Personal exemptions are a deduction, which means they reduce your taxable income. In 2017, you could knock $4,050 per family member off the top. For example, if you had a family of four, you could deduct up to $16,200 (4 x $4,050) from your taxable income before calculating your taxes. This results in a lower tax bill and can even keep you in a lower tax bracket. The TCJA has done away with personal exemptions, so having a larger family in and of itself won't give you more deductions.
The Child Tax Credit
The TCJA did not get rid of the Child Tax Credit, fortunately. The CTC is a credit, not a deduction, so instead of reducing taxable income, it reduces the actual taxes due. It's primarily a nonrefundable credit, which means that if the credit is more than the taxes you actually owe, your tax bill is zero, but you don't get a refund for the remaining credit.
For example, if you get a credit for $1,000 but you only owe $800, the credit will get rid of the $800 tax liability, but the $200 difference isn't given to you as a refund. Families in certain circumstances could take advantage of the Additional Child Tax Credit, however, which was refundable.
The TCJA has increased the CTC and made a portion of it refundable. In doing so, the Additional Child Tax Credit merged with the CTC (although you still must qualify for the refundable part).
Child Tax Credit in 2017
In 2017, the credit was up to $1,000 per qualifying child under the age of 17, subject to reductions if you made a lot of money. The credit would decrease incrementally for couples who filed jointly and made more than $110,000 per year and single filers who made more than $75,000 per year, until it was completely phased out. The credit was also not refundable.
The Additional Child Tax Credit
The Additional Child Tax Credit was available in 2017 for families who made more than $3,000 per year and had three or more qualifying children. A taxpayer claiming the credit could claim 15 percent of his taxable earned income over $3,000, up to $1,000, per child.
For example, if your taxable income for 2017 was $100,000 and you had four children, you qualified for the credit. If you made $100,000, then you made $97,000 over $3,000, and 15 percent of $97,000 would be $14,550. You would receive the full $1,000 per kid, for a refundable tax credit of $4,000. If your taxes owed were $3,000, you'd get a $1,000 refund.
Child Tax Credit in 2018
The credit was increased by the TCJA for 2018 through 2025, and the Additional Child Tax Credit merged with the CTC, so that the CTC is larger and has a refundable portion. For 2018, the CTC is up to $2,000 per qualifying child depending upon your income, and up to $1,400 of that amount is a refundable credit. Although the Additional Child Tax Credit merged with the CTC into a single credit, you still need a certain amount of income to take advantage of it; you must make more than $2,500 per year to qualify for the refundable portion.
Qualifying for the 2018 CTC
The phase-out thresholds for the CTC have also increased for the 2018 tax year. Married taxpayers filing jointly can claim the full $2,000 credit per child if they make less than $400,000 jointly per year; for single filers, the amount is $200,000. After those amounts, the credit is decreased by $50 for every $1,000 of income until it disappears at $440,000 for joint filers and $240,000 for single filers.
2018 Child Tax Credit Calculator
You can figure out your credit for the 2018 tax year using a 2018 child tax credit calculator online, like the free tax estimator on TurboTax. You can also calculate the CTC yourself.
If you're single and you make $100,000 per year, you qualify for the full credit for each child. If you have four children, you get a credit of $2,000 per child, of which $1,400 is refundable and $600 is nonrefundable. This means you have nonrefundable credits totaling $2,400 and refundable credits totaling $5,600. If you owe $5,000 in taxes, the credit will deduct $2,400 in nonrefundable credits leaving a bill of $2,600, and then reduce the rest to zero with the refundable credits, leaving a refund of $3,000 ($2,600 minus $5,600 in refundable credits).
The Credit for Other Dependents
The Credit for Other Dependents is new in 2018. It's a $500 nonrefundable credit for dependents other than minor children, such as adult children or dependent parents. The credit can be used for any qualifying dependent who isn't a qualifying child for purposes of the CTC, subject to reduction based upon income.
Who Is a Qualifying Child?
To take advantage of the CTC, your child must be a qualifying child. This means that the child:
- is your biological child, stepchild, sibling, stepsibling, half sibling, eligible foster child, adopted child or a descendant of any of these.
- was under 17 at the end of the tax year.
- did not provide more than half of her own support during the tax year.
- lived with you for more than half of the tax year.
- is claimed as a dependent on your tax return.
- did not file a joint return for the tax year.
- was a U.S. citizen, U.S. national or U.S. resident alien during the tax year.
Credit for Other Dependents Qualifications
To claim someone as an Other Dependent for purposes of the additional $500 credit, the person:
- must be claimed as a dependent on your tax return.
- must not be claimed as a child for the Child Tax Credit.
- must be a U.S. citizen, U.S. national or U.S. resident alien.
- Forbes: Kids & Other Dependents Can Change Your Tax Picture Following Tax Reform: Here's What To Do Now
- Garvey Schubert Barer: Decoding the Tax Cuts and Jobs Act – Part VII: Family Matters and Major Events in the Lives of Individuals
- IRS: Publication 5307 - Tax Reform Basics for Individuals and Families
- IRS: Publication 501 (2018), Dependents, Standard Deduction and Filing Information
- IRS: Publication 972 (2018), Child Tax Credit
- What’s new with the child tax credit after tax reform | Internal Revenue Service