Your clients’ family situation plays a significant role in how the tax law changes enacted under the Tax Cuts and Jobs Act affect their taxes. Here is a list of the items 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 (CTC) 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 CTC 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.
For more information about this credit, read our support article.
Expansion of the 529 Savings Plan
Under the new TCJA, clients with a 529 savings plan can use money from their plan to pay for 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
The Setting Every Community Up for Retirement Enhancement Act repealed the changes to the kiddie tax made by the TCJA, effective beginning in tax year 2020.
For tax years 2018-2019, if your client reported over $2,100 in unearned income for dependents under age 19 (or college students under 24), that income was taxed. Following the TCJA, qualifying income will be taxed at the rate for trusts and estates. See the rates for 2019 below.
|Unearned income between:||Tax due:|
|$0-$2,600||10% of taxable income|
|$2,601-$9,300||$260 + 24% of the amount over $2,600|
|$9,301-$12,750||$1,868 + 35% of the amount over $9,300|
|$12,751+||$3,075.50 + 37% of the amount over $12,750|