When it comes to paying taxes, most families try to hold on to as much of their money as possible. And with IRS-approved tax credits, there have traditionally been a number of ways that families can pay less in taxes. However, with sweeping changes to the tax code, many of those credits are changing.
When Congress passed the Tax Cuts and Jobs Act of 2017, it ushered in a number of new policies that will affect the amount that most American families will be required to pay in taxes-as well as the amount they will be able to keep. Specifically, some tax credits that families may expect to be able to take are no longer available, while other tax credits will be even more lucrative than in the past.
- Child tax credit
If you have dependent children at home who are age 16 or younger, your tax bill probably just got cheaper. For tax year 2017, the child tax credit is a maximum of $1,000 per child, but for 2018, that amount will almost double to about $2,000 per child.
Traditionally, the child tax credit was not refundable, which means that if the credit was higher than the amount you owed in taxes, you would not get money back for it. But with the new tax bill, up to $1,400 is refundable-so if a family's taxable income is too low to be taxed, they may qualify to receive up to $1,400 per child.If you are married and filing a joint return, the new child tax credit will start phasing out when your income reaches $400,000 (for all other taxpayers, the phase-out starts at $200,000). The amount of your credit is reduced by $50 for each $1,000 by which your taxable income exceeds the threshold amount. Previously, the lower credit phased out for married taxpayers earning more than $110,00 and singles earning more than $75,000.
- Non-child dependent credit
This new tax credit can benefit families that care for or support elderly parents or grown children with disabilities, or other qualifying dependents who are not their minor children. It is a $500 credit that will go into effect for 2018, with taxes filed in 2019. While the credit can reduce the amount of taxes owed, it is not refundable-so if you owe nothing, the IRS will not pay you $500 if you qualify for the non-child dependent credit.
- Child and dependent care credit
Families can still count on a tax credit for some of the money they spend on childcare (or care for disabled adults who depend on them). The child and dependent care credit allows you to get credit for up to 35 percent of qualifying expenses for daycare, babysitters or qualifying summer camps (with a $3,000 limit for one qualifying individual and $6,000 limit for two or more qualifying individuals). So as you make plans for your children's care during the upcoming year, remember to maintain records of what you pay for their care while you're working, because you'll need that information when tax time rolls around again.
- Earned income tax credit
For working families with low to moderate income, the refundable earned income tax credit offers money back, even if your tax liability is low or zero. While the new tax law retains this credit, there will be some changes. For 2017, married taxpayers with three or more qualifying children and income lower than $53,930 can be credited up to $6,318. (Those with two children can get up to $5,616 and those with one, up to $3,400.) But in 2018, married couples with three or more children will be able to claim the earned income tax credit as long as their income is less than $54,998. The maximum credit amount will be $6,444 for three or more children, $5,728 for two children and $3,468 for one child.