The child tax credit, or CTC, was introduced by 1997 legislation and was first available in 1998. It started as a small, nonrefundable credit of $400 for each qualifying child under 17. In the last 20 years, it has undergone many changes. Under the pre-TCJA law, the CTC was worth up to $1,000 per qualifying child, was refundable for taxpayers with earned income of at least $3,000, and phased out (decreased) for taxpayers with AGI above $75,000 ($110,000 for joint filers). These rules remain in effect for 2017 tax returns (filed in 2018).
Under the new Tax Cuts and Jobs Act (TCJA):
- The CTC is worth up to $2,000 per qualifying child. The age cut-off remains at 17 (the child must be under 17 at the end of the year for taxpayers to claim the credit).
- The refundable portion of the credit is limited to $1,400. This amount will be adjusted for inflation after 2018.
- The earned income threshold for the refundable credit is lowered to $2,500.
- The beginning credit phaseout for the CTC increases to $200,000 ($400,000 for joint filers). The phaseout also applies to the new family tax credit.
- The child must have a valid SSN to claim the nonrefundable and refundable credit.
Prior to the TCJA, the taxpayer who was eligible to claim the child’s dependent exemption was also the one eligible to claim the CTC. In turn, the taxpayer and child had to meet several “tests” for the one to be considered the dependent of the other.
The TCJA eliminates the dependent exemption itself but retains the definition of dependent to claim the CTC and another child – or dependent-related tax benefits. For CTC purposes, this will usually mean that the child must be related to the taxpayer in one of several ways (son, daughter, grandchild, etc.), must live in the taxpayer’s home more than half the year, and must not provide more than half of his or her own support. Special rules apply if the parents are divorced or legally separated.
As under previous law, strict due diligence requirements apply for tax professionals who prepare returns with the refundable CTC.
All changes to the child tax credit expire after December 31, 2025.
For more information or for advice about claiming dependents, make an appointment with one of our tax professionals who can help you.