Tax Law Changes for Families
Your clients’ family dynamic will impact how the changes affect their taxes. Here is a list of the tax law changes that may impact your clients’ tax situation related to dependents, savings plans, and more.
Changes to the Child Tax Credit
The Tax Cuts and Jobs Act doubled the Child Tax Credit to $2,000 per qualifying dependent. The threshold for claiming the credit was lowered to $2,500, and it phases out for single taxpayers earning $200,000 or more ($400,000 if married filing jointly). The Child Tax Credit before tax reform was not refundable, but going forward, it is partially-refundable up to $1,400.
Your clients’ dependents must be:
- 16 years old or younger on the last day of the tax year
- A U.S. citizen, U.S. national, or U.S. resident alien with a valid SSN
- Related to them through birth, adoption, foster care, or marriage
- Living with them for more than half of the tax year
- Supported by them
$500 credit for other qualifying dependents
If your clients’ dependent does not have an SSN, they can’t take the CTC. However, if they have an ITIN, they may be eligible for the $500 family tax credit introduced by the TCJA. This credit is non-refundable for dependents age 17-24, elderly, or disabled with an ITIN.
Expansion of the 529 Savings Plan
Under the new TCJA, clients with a 529 savings plan can use money from their plan to cover up to $10,000 per year of qualifying expenses for any school and any grade, K through 12. This includes public, private, and religious institutions as well.
Changes to the kiddie tax
If your client is reporting over $2,100 in unearned income for dependents under age 19 (or college students under 24), that income will now be taxed. Following the TCJA, qualifying income will be taxed at the rate for trusts and estates. See the rates for 2019 below.