The Tax Cuts & Jobs Act of 2017 (TCJA) drastically changed tax rules for American families. Among the most impactful reforms: the elimination of the dependency exemption for children starting in the 2018 tax year. Previously a key point of contention for divorced or separated parents, the dependency exemption is now valued at $0. This change, however, does not apply to 2017 returns.
In place of the dependency exemption, the TCJA increased the standard deduction amounts to:
- $12,000 for single filers and those married filing separately
- $18,000 for heads of household
- $24,000 for married couples filing jointly
This deduction is independent of the number of children and only available to those who do not itemize deductions. Simultaneously, the child tax credit was expanded.
Child Tax Credit Reform:
- Credit amount: Up to $2,000 per qualifying child under 17.
- Refundable portion: Up to $1,400, indexed for inflation after 2018.
- Earned income threshold: Lowered to $2,500.
Phaseouts now begin at $200,000 for single filers and $400,000 for joint filers. Both refundable and nonrefundable credits require the child to have a valid SSN.
While the dependency exemption was repealed, the IRS definition of a dependent remains crucial for eligibility. Taxpayers must satisfy five key tests:
- Age: Child must be under 17 at year-end.
- Support: Child must not provide more than half of their own support.
- Dependency: Child must be claimed on your return.
- Citizenship: Child must be a U.S. citizen, national, or resident alien.
- Residency: Child must have lived with you for more than half the year.
These expanded benefits under the TCJA are temporary and set to expire after December 31, 2025.
Finally, the enhanced standard deduction remains available to all qualifying taxpayers unless they itemize deductions. With the increased complexity under the new rules, early preparation is more important than ever. For professional support and guidance, contact the experts at TYSLLP.com at 925-498-6200.
If you are not sure where you land on this or any other tax question, contact us at https://tysllp.com/contact-us/
Sources:
Pittsburgh Magazine
http://www.pittsburghmagazine.com/Pittsburgh-Magazine/March-2018/New-Tax-Law-Eliminates-Child-Tax-Exemption-for-Parents/
The Internal Revenue Service online
www.IRS.gov
Smart Asset
https://smartasset.com/taxes/all-about-child-tax-credits
The Internal Revenue Service online
www.IRS.gov
Smart Asset
https://smartasset.com/taxes/all-about-child-tax-credits