Tax Insights

Your Guide to State, Local, Federal, Estate + International Taxation

The basics of the expanded child tax credit

child tax credit, tax law, tax reform, tax, IRSUnder the new tax reform bill, the Child Tax Credit was raised to $2,000 (increased $1,000 from 2017) per qualifying child. While the criteria for qualifying a child for this credit have not changed from 2017, some of the other rules are different going forward to 2018.

Let’s look at how this credit is changing from 2017 to 2018:

Based on MFJ20172018
Child tax credit (per child)$1,000$2,000
Income phase-out begins$110,000$400,000
Refundable amount (per child)$ - $1,400

First, the income phase-out begins at a much higher amount in 2018, so many more families will qualify for the credit. The 2018 phase-out starts at $400,000 MAGI for married filing joint families. So your credit will only start to reduce once your modified adjusted gross income is $400,000 or more and will be fully eliminated at $440,001. See the chart below for the different phase-out amounts based on your filing status.

Phase out amounts based on filing status
Full creditPartial creditPhase out - no credit
Single$0 - $200,000$200,001 - $240,000$240,001+
Married filing jointly$0 - $400,000$400,001 - $440,000$440,001+
Head of household$0 - $200,000$200,001 - $240,000$240,001+
Married filing separately$0 - $200,000$200,001 - $240,000$240,001+

Second, as you can see above, the 2018 child tax credit is now refundable (up to $1,400 per child).

A refundable credit means you can benefit from the credit even if you do not owe any tax. Unlike with a nonrefundable credit, even if you don’t have any tax liability, the “extra” credit is not lost but is instead refunded to you.

However, to claim the refundable portion of the credit, you must have earned income. For the 2018 child tax credit, the refundable portion is equal to 15% of your earned income which exceeds $2,500 up to the maximum credit. For example: if your earned income is $12,000 and assuming you have one qualifying child and are entitled to one full $2,000 tax credit, you can receive up to $1,425 of refundable credit ($12,000-2,500=$9,500)*.15 = $1,425.

The new 2018 Child Tax Credit will be available to many more families than prior versions of the credit. And for many, the expanded child tax credit will more than make up for the lost personal exemptions. If you have any additional questions that pertain to your family’s individual situation, please consult your tax advisor.

Meghan Scott, EA