The new tax code overhaul might hurt the pocketbooks of many parents. But the news is not all bad for taxpayers with children.
One downside of the federal tax code law enacted last month is that it deleted or diminished many income tax deductions. That’s true for parents, too.
On the other hand, the overhaul — formally dubbed the Tax Cuts and Jobs Act — expanded one tax credit designed for parents and added another. Even parents of adult dependents stand to benefit from one of these credits.
That’s especially good news when you consider that a tax credit is better than a tax deduction.
Here are three ways the overhaul will affect parents:
1. No personal exemptions
First, the bad news: Starting with tax year 2018 — meaning the tax return you’ll file next year — deductions for personal exemptions are suspended for eight years. That includes personal exemptions for yourself, your spouse (for joint returns) and eligible children or relatives.
So, savor claiming those deductions as you file your 2017 taxes this year. It will be your last chance to claim them until tax year 2026.
According to the H&R Block Tax Institute, personal exemptions lowered taxable income by more than $4,000 per exemption last year.
2. Expanded child tax credit
The tax code overhaul increased the child tax credit for tax years 2018 through 2025. Rather than $1,000, it will be worth $2,000 per eligible child under the age of 17.
The income thresholds for this credit have also increased, making it available to far more taxpayers.
Under prior law, the credit was diminished or worthless for folks with a taxable income above:
- $110,000 (for married taxpayers filing jointly)
- $75,000 (for single taxpayers)
- $55,000 (for married taxpayers filing separate returns)
Under the overhaul, however, the income thresholds are:
- $400,000 (for married taxpayers filing jointly)
- $200,000 (for all other taxpayers)
The portion of the child tax credit that is refundable also increased, from $1,000 to $1,400. That’s a big deal because it means even parents who don’t owe any federal income taxes can receive up to $1,400 from Uncle Sam.
3. New tax credit for non-child dependents
H&R Block reports that, for tax years 2018 through 2025, the overhaul allows a new tax credit for dependents who don’t qualify for the child tax credit. It’s worth $500.
The firm explains:
“Taxpayers can claim this credit for children who are too old for the child tax credit, as well as for non-child dependents.”
You cannot claim this credit for yourself or a spouse, though. You cannot claim it if you don’t owe taxes, either, as it’s a nonrefundable tax credit.
What’s your take on this news, parents? Share your thoughts below or over on our Facebook page.