4 Important Things You Need to Know about How the Child Tax Credit was Affected by the New Tax Reform

Are you one of the millions of Americans who rely on the Child Tax Credit to help offset your annual tax bill and provide you with some extra cash to get caught up on expenses, move, or plan a family vacation? The Child Tax Credit provides some extra money for families with children 16 years old or younger at the end of the tax year. The Child Tax Credit (CTC) experienced some major changes during the tax reform signed into law by President Trump in December 2017 and effective beginning with tax year 2018. Here are four important things you need to know about how the Child Tax Credit was affected by the New Tax Reform.

Child Tax Credit Increases

The best news is the Child Tax Credit increased from $1,000 to $2,000 beginning with tax year 2018. This will help families offset their tax bill, especially ones who itemized in the past, but who may have lost the tax benefit of some of the tax deductions that were eliminated under the New Tax Reform. For other families, who are low-wage earners and usually take the standard deduction, this will be a win-win, as they now will qualify for a higher child tax credit and be able to take the higher standard deduction too.


As in years past, you must qualify for the Child Tax Credit. If families do not meet all the qualifications, they do not qualify to take the credit.

Qualifying Child. In order to receive the Child Tax Credit, the taxpayer must have a qualifying child. Although this list is not exhaustive, the requirements for a child to qualify remains unchanged under the new tax reform.

  • Age. The child must be a qualifying child under the age of 17 at the end of the tax year. The IRS has an interactive tax assistance to help you determine if your child meets the requirements of a qualifying child in regards to receiving the tax credit.;
  • Relationship. A taxpayer’s son, daughter, stepchild, foster child, adopted child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of one of these individuals.;
  • Support. The taxpayer must have provided more than half of the child’s support. In other words, the child / dependent cannot provide more than half of their own support.;
  • Dependent. The taxpayer must claim the child as a dependent on the same return they are claiming the child for the Child Tax Credit. If the child does not qualify as the taxpayer’s dependent, then they do not qualify as an eligible child for the Child Tax Credit.;
  • Residence. In the majority of situations, with few exceptions, the child must have lived with the taxpayer for more than half of the tax year for the year the Child Tax Credit is being claimed.; and
  • Social Security Number. The child / qualifying dependent needs to have a social security number.

Like before the new tax reform, specific rules apply, if the child’s parents / guardians do not live together.

Earning Requirement. The new tax reform lowers the earning requirement from $3,000 to $2,500. Although not a huge change, this will help more families qualify for the credit that need it most.

Income Phaseout. Also, the New Tax Reform makes more high-income earners qualify for the tax credit. In previous tax years, the credit started being phased out for taxpayers with adjusted gross income (AGI) of $75,000 for single filers or $110,000 for married filing jointly filers. Starting in tax year 2018, the new phase out limits start at AGI limits of $200,000 for single filers and $400,000 for married filing jointly filers.

Refundable Amount Increases

The exciting news for families qualifying for the Child Tax Credit is not only is the Child Tax Credit increasing, but the refundable amount is increasing as well. This means that even if your tax liability is zero, in other words, you do not owe any taxes, you can still receive up to $1,400 refunded back to you just from the Child Tax Credit alone.

Before the New Tax Reform, the amount refunded back to you was limited based on you qualifying for the Additional Child Tax Credit (ACTC) and limited to 15% of your income and the $1,000 per child / dependent cap. Now, under the new reform, if you have one child and qualify for the Child Tax Credit and you owe $2,000 in taxes, your tax bill will be $0 because the $2,000 Child Tax Credit will wipe out your tax bill. However, if you only owe $600 in taxes, than the Child Tax Credit would wipe out your tax bill, but the up to the remaining $1,400 of the Child Tax Credit ($2,000 - $600) could be refunded to you.

The Final Note

Starting in 2017, the IRS, to help combat tax scammers, held off on processing Child Tax Credit refunds until February 15 under the Protecting Americans from Tax Hikes Act (PATH). This helps American families by giving them additional time to get that tax return completed. In the past, scammers would get the tax return completed first and potentially get the refund before the real qualifying taxpayer even completed their return. This meant the person, who was actually owed the tax refund, ended up not getting it for months, as they completed the process of proving they were the real taxpayer. In 2018 (and it is expected to be the same in 2019) this meant the earliest families started receiving their Child Tax Credit refunds was the end of February. Plan accordingly, seek expert tax advice, and get your tax returns submitted as early as possible.

To understand how the new changes to the Child Tax Credit affect apply to your tax situation, schedule an appointment today with the accounting and tax preparation professionals at Gudorf Tax Group.