Changes to the Child Tax Credit for 2019

Joseph Meyer
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Child Tax Credit Guide

If you have a child or children, the U.S. government wants you to know about a child tax credit. If eligible, the new tax credit for 2019 can help you reduce your federal taxes and will help offset the cost of raising kids. You may be eligible for a child tax credit if you had at least one child under the age of 17 at the end of the year.

The child tax credit is a dollar-for-dollar reduction of your federal income taxes. The amount you can receive depends on your income. In 2018, more than nine million families received the child tax credit. It’s expected that 10.7 million families will receive the credit in 2019.

The new tax credit is much simpler than the old credit, so you have more reason to jump on the child tax credit bandwagon. On your 2019 tax return, receipts won’t be necessary.

Tax credits are valuable because they can further lower your income tax liability. As such, they can change how much you owe the IRS or help you get a bigger refund.

What Is the Child Tax Credit?

The Child Tax Credit was first implemented in the year 1997. At the time, the primary objective was to help reduce child poverty. It allowed greater tax relief to parents for each child under the age of 17. In 2010, it was expanded to help cover the costs of children under 17 who have a physical or mental disability as well.

The amount of tax relief given under the Child Tax Credit depends on the parents’ income and the number of children they have. In short, the more children you have and your income, the more tax relief you get.

The Child Tax Credit is non-refundable (this is explained later) so you don’t get any more money if the credit exceeds your taxes owed. However, the amount you can claim increases every year and the payment threshold (the amount of income that determines whether you can claim the credit) has increased as well.

How Much Can You Claim?

How Do You Claim the Credit on Your Taxes?

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What Are the Income Limits for the Child Tax Credit?

Who Can Claim the Child Tax Credit?

The IRS-issued tax code is based off of the Federal Tax System, and is one of the two taxing methods that the IRS enforces.

The IRS provides tax incentives to taxpayers who are raising children related to one’s income, and the amount of a child tax credit that a person can claim is based on how many of one’s own children that one has.

Tax credits are subtracted from the total of taxes that a person is expected to pay, so they should reduce your tax bill significantly. With the child tax credit, this is multiplied by up to five dependent children, and one spouse cannot use the disabled tax credit; in other words, only one person in the family can claim the disabled tax credit.

The child tax credit applies to both single and joint filers. However, it can be dependent on certain income parameters and whether the person is married or not.

There are three basic ways to claim the child tax credit; as a refundable credit, as a nonrefundable credit, or as a partially nonrefundable credit.

Can You Get the Child Tax Credit as Part of Your Refund?

The 2019 tax season will be the last time child tax credits are claimed as part of the refund process. Starting with tax year 2020 (beginning in April 2020), taxpayers will have to amend their tax return and they can’t get their refund in one big lump sum. The IRS will send out a payment as it does for other tax credits.

How Can You Get the Additional Child Tax Credit?

One of the simplest ways to reduce your tax liability is to take the Additional Child Tax Credit. The size of the credit depends on a number of factors, including both your income and the number of children you have.

The Child Tax Credit reduces the amount of income tax you would otherwise owe. The Additional Child Tax Credit is refundable, meaning that you are eligible to receive the whole amount even if you do not pay taxes.

If your total tax credits are larger than your tax liability, you will receive a refund for the difference. So, if you qualify for the Additional Child Tax Credit, you can reduce your tax liability or get a larger refund.

Child Tax Credit History

The Child Tax Credit (CTC) was established in 1997, and many changes have been made to this tax credit since then. Originally, the named credit was the Dependent Care Tax Credit, but it was changed to the CTC to acknowledge the support that working parents needed to care for their children.

When the CTC was first implemented, it applied only to children under 17. Within a few years, the age restriction was removed, although the credit does officially apply only to qualifying children under age 17 as of January 1 of the tax year.

Two changes that were made to the CTC in 2015 affected more people than most of the changes that took place over the past 15 years. First, the income caps on the credit were significantly increased so that more families would be eligible for the tax credit. Second, the income phase-out limits were increased.

Historically, these changes indicated that our nation cares more for the needs of children and families, and that’s why our nation has seen benefits such as working parents choosing to delay having children until they are more financially stable.

Clinton – Child Tax Credit Inception

Bush – Child Tax Credit Expansion

In 2001, President George W. Bush signed into law the Economic Growth and Tax Relief Reconciliation Act (EGTRRA), which included a major change in how parents could claim a tax credit to help pay for their children’s college.

Prior to EGTRRA, student loan interest deduction was the main means of providing tax relief for raising children. EGTRRA allowed for the first time for parents to claim a tax credit to help pay for their children’s college. This made it a viable option for low and middle-income families to pay for college, and consequently increased college graduation rates for low and middle-income families.

In 2005, President Bush further expanded the Child Tax Credit to provide tax relief for parents of dependent children. President Bush argued that the Child Tax Credit expansion would lead to 50 percent dropout rates and a one standard deviation increase in test scores.

Democrats opposed the Child Tax Credit expansion, arguing that the tax relief would lead to disproportionate income increases to families with the greater ability to save and plan for college.

Studies have shown that the Bush Child Tax Credit expansion led to a significant increase of college attendance of non-traditional college students and in graduation rates. The research is somewhat more mixed on how the Bush Child Tax Credit expansion impacted test scores.

Trump – Child Tax Credit Expansion

As you may know the federal government just changed the tax laws for the 2019 tax year.

One of the more controversial changes is to the dependent exemption (AKA child tax credit). Previously the only child you can claim this dependent exemption for was your child. Now, you’re able to claim the exemption for child, stepchild, foster kids, sibling, and even your nieces and nephews.

This tax credit is also available for any other dependent who lives with you for more than 6 months.

As you see it will now be easier for parents to qualify for this tax credit for nieces/nephews or siblings. Also, it guarantees a credit for more people who may not have qualified before due to the repealed dependent exemption for qualifying relatives.

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