Many taxpayers who live in high tax states in the Northeast region of the United States are concerned that their 2018 tax liabilities will increase because they will only be able to deduct $10,000 of state and local income and property taxes (SALT) should they itemize their deductions.
For those taxpayers who have children 16 years of age and under, this may not be true. The reason for this is an enhanced child tax credit for tax years 2018 through 2025 that was put in place as part of the Tax Cuts and Jobs Act that Congress passed and President Trump signed in December 2017.
Under the law in place prior to 1/1/18, the child tax credit was $1,000 per child 16 years of age and under. The credit began to phase out (for a married couple filing a joint return) at adjusted gross income of $110,000. The phase out was $50 per thousand dollars of income above $110,000. A married couple filing jointly with two children under 16 years of age would receive no child tax credit once their adjusted gross income exceeded $150,000.
Under the new law, the child tax credit is doubled to $2,000 per child under the age of 16 and the phase out doesn’t kick in until a married couple’s income on a joint return reaches $400,000. The phase out kicks in at $200,000 for all other filing statuses with the same $50 reduction per thousand dollars of income over the phase out level.
Our married couple who received no tax credit because their adjusted gross income exceeded $150,000 would now get a $4,000 credit as long as their AGI didn’t exceed $400,000.
They may receive a 70% refundable credit ($1,400 per child) even if they had no federal tax liability in 2018.
They may also receive a $500 non-refundable tax credit for other dependents claimed on their tax return who are no longer considered to be children by the tax laws. For example, their son or daughter who graduated from college, came back home to live with them and hasn’t found a job yet. Under the old law, no tax credit. Under the current law, $500 credit.