How the Tax Overhaul Helps — and Hurts — Parents

A mother helps her child fill a piggy bank
Photo by PR Image Factory / Shutterstock.com

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.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
7 Reasons to Carry Mortgage Debt Into Retirement
7 Reasons to Carry Mortgage Debt Into Retirement

It often makes financial sense to not pay off your mortgage before retiring.

10 Things That Really Are Free on Amazon
10 Things That Really Are Free on Amazon

These freebies are available to anyone — no Prime membership necessary.

8 Ways to Slash Your Internet Bill
8 Ways to Slash Your Internet Bill

No matter what price you are paying for internet service, taking these simple steps can lower it.

Avoiding These 5 Foods Could Save Your Vision as You Age
Avoiding These 5 Foods Could Save Your Vision as You Age

Millions of Americans may be able to prevent an incurable cause of blindness by making a basic change.

8 Secrets of an Expert Thrift Store Shopper
8 Secrets of an Expert Thrift Store Shopper

Here’s how a veteran thrift shopper scores the best deals — and turns a profit from them.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
10 Things Frugal People Never Buy
10 Things Frugal People Never Buy

If you’re a true tightwad, the mere thought of spending money on these items gives you the willies.

7 Social Security Benefits You May Be Overlooking
7 Social Security Benefits You May Be Overlooking

There’s more to Social Security than retirement benefits.

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

Whether you resell it for a big profit or add it to your own wardrobe, this type of clothing is a hidden steal.

10 Cars You Are Most Likely to Keep for 15 Years
10 Cars You Are Most Likely to Keep for 15 Years

The cars that owners hold onto the longest have one thing in common, a new study shows.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

The 6 Best Investing Apps for Beginners
The 6 Best Investing Apps for Beginners

If you’re looking to ease into investing in the coronavirus economy with just a little money, check out these easy-to-use tools.

14 Things You Should Stop Buying in 2021
14 Things You Should Stop Buying in 2021

These convenient household products come with hidden costs that you might not have considered.

7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

8 Things You Should Replace to Improve Your Life Today
8 Things You Should Replace to Improve Your Life Today

Being frugal isn’t smart if you put off replacing these items.

9 Things You Should Never Leave in a Car
9 Things You Should Never Leave in a Car

Thinking of leaving these possessions in a car? Prepare for unexpected consequences.

9 Mistakes People Make When Cleaning With Vinegar
9 Mistakes People Make When Cleaning With Vinegar

Cleaning with vinegar can save you a lot of money, but using it like this can cost you.

13 Amazon Purchases We Are Loving Right Now
13 Amazon Purchases We Are Loving Right Now

These practical products make everyday life a little easier.

7 Income Tax Breaks That Retirees Often Overlook
7 Income Tax Breaks That Retirees Often Overlook

Did you realize all these tax credits and deductions exist — or that they apply to retirees?

10 Things Successful Retirees Do Differently
10 Things Successful Retirees Do Differently

These habits and characteristics can help put you on the track to success.

7 Costly Health Problems That Strike After Age 50
7 Costly Health Problems That Strike After Age 50

As we age, our bodies wear down. Here is how to cut costs associated with some common ailments.

29 Purchases That Can Save You Money Every Day
29 Purchases That Can Save You Money Every Day

Sometimes, you’ve got to spend to save.

7 Things I Never Buy at Costco
7 Things I Never Buy at Costco

A bulk buy isn’t always the best buy.

5 Tax Mistakes to Avoid in Retirement
5 Tax Mistakes to Avoid in Retirement

Even great savers can reduce their retirement income by making these mistakes.

2 Financial Woes That Can Signal the Start of Dementia
2 Financial Woes That Can Signal the Start of Dementia

These money management issues can hint at dementia years prior to diagnosis, a new study finds.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.