With President Trump’s new tax law, the child tax credit was raised from $1,000 to $2,000 per child for 2018 and 2019. Having qualified dependent children may also allow you to claim other significant tax credits, including the earned income credit (EIC). Together, the tax savings can be significant for many American families.
However, at higher income levels, the child tax credit is phased out and begins to disappear as income rises above $400,000 on joint returns, and above $200,000 on single and head of household returns. Up to $1,400 of the 2018 credit is refundable, meaning that if it exceeds your income tax liability for the year, the IRS will issue a refund check for the difference. If you didn’t qualify in prior years, it’s important to recheck your eligibility each passing year.
How a Child Qualifies as a Dependent
There are certain conditions you must meet if you’re going to claim your child as a dependent after the 2018 tax year. You must make sure that you pass the relationship test:
- You are the child’s legal parent by blood or marriage, or you adopted the child.
- The child is your stepchild or foster child.
- The child is a sibling, step-sibling, half-sibling.
- The child is a dependent of any of these relatives.
The child must be living with you for more than six months during the year unless divorce or separation prevents it. The birth or death of a child during the year may also be exempt from this condition.
The child’s age also factors in by the end of the tax year. If the child is younger than 19, or 24 and under and is a full-time student for at least five months during the year. Children that are permanently disabled are exempt from the age rule.
Additionally, if you wish to claim a child dependent, he or she may not have provided more than half of their own support during the tax year. Finally, the child may not file a joint tax return unless he or she is claiming a refund for taxes withheld.
Taxes, Children, and Divorce
Only one person can claim a child as a dependent during the same tax year, which means both parents cannot do so, including those who are divorced. In the case of divorce, the parent with whom the child resided for the majority of the tax year can make the claim. If both parents get equal time during the tax year, then the parent with the highest adjusted gross income (AGI) can make the claim.
If taxpayers are not the child’s parents, the one with the highest AGI can claim the dependent on their tax return.
Earned Income Credit and Qualifying Child Criteria
A qualifying child cannot be used by more than one person to claim the Earned Income Tax Credit. In addition, the child must meet the relationship, age and residency tests. If you don’t have a child, you (or your spouse if filing jointly) must be at least age 25, but under age 65…and you (and your spouse if filing jointly) cannot qualify as the dependent of another person. In addition, you (and your spouse if filing jointly) must have lived in the United States more than half the tax year.
Here’s how much you can save per child with the EIC, along with income limitations.
A qualified dependent for tax purposes can be either a qualifying child or another qualifying relative (the child tax credit and EIC may not apply to other qualifying relatives). In order to qualify as a dependent, the child must either be a citizen or resident of the United States, or a resident of Canada or Mexico.
In addition, you cannot claim someone as a dependent if he files his own tax form on which he takes a personal exemption for himself or on which he claims dependents. Anyone who is married and filing a joint return may not be claimed as a dependent.