The Tax Cuts & Jobs Act of 2017 (TCJA) ushered in sweeping changes that continue to reshape the tax landscape, particularly for divorced, separated, or unmarried parents. Among the most significant shifts: the elimination of the dependency exemption for children, long a key point of negotiation in custody disputes. Beginning with the 2018 tax year, the exemption was reduced to zero. Importantly, this change does not affect 2017 tax returns.
To counterbalance the loss, the TCJA substantially raised the standard deduction: $12,000 for single filers and those married filing separately, $18,000 for heads of household, and $24,000 for married couples filing jointly. This higher deduction benefits all qualifying filers, regardless of the number of children, provided they do not itemize deductions. In addition, the law increased the child tax credit for eligible families.
Child Tax Credit Updates
Under the TCJA, the child tax credit was expanded beginning in 2018:
- The credit is worth up to $2,000 per qualifying child (under age 17 by year-end).
- Up to $1,400 of the credit is refundable, with inflation adjustments beginning after 2018.
- The earned income threshold for the refundable portion is lowered to $2,500.
The phaseout threshold also increased dramatically: $200,000 for single filers and $400,000 for joint filers. Both the expanded credit and the new Family Tax Credit are subject to this phaseout.
To claim the child tax credit, the child must possess a valid Social Security number. While the dependency exemption itself has been eliminated, the criteria for claiming a child as a dependent—relationship, age, support, residency, and citizenship—remain intact for credit purposes.
IRS Qualification Tests Include:
- Age Test: Child must be under 17 at the end of the tax year.
- Support Test: Child must not provide more than half of their own financial support.
- Dependent Test: Child must be claimed on your federal return.
- Citizenship Test: Child must be a U.S. citizen, U.S. national, or U.S. resident alien.
- Residency Test: Child must live with you for more than half of the year, with limited exceptions.
These expanded child tax credits are set to expire after December 31, 2025, unless Congress acts to extend them.
Tax rules are more complex than ever. At TYSLLP.com, our advisors are ready to help you navigate these changes confidently. Contact us today at 925-498-6200 for personalized guidance. And remember—early organization is key, as tax preparation now takes more time under the new law.
Finally, whether you claim a dependent or not, the increased standard deduction remains available to all non-itemizing taxpayers. However, those who itemize cannot simultaneously claim the standard deduction.
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