Among all the new and exciting challenges with a new child, you may not have considered how your child will affect your taxes. No worries, it's nothing but good news.
First, you do not have to prorate tax breaks based on when your child was born. Even if born on the last day of the year, the IRS counts your child as having lived with you all year. So you get the full value of the tax breaks available to parents.
Child Tax Credit and Credit for Other Dependent
Beginning with 2018 returns, the Child Tax Credit was doubled to $2,000 for each eligible child dependent. The credit is nonrefundable, meaning it only applies to your liability for the year. But see the Additional Child Tax Credit below.
There is also a $500 Credit for Other Dependents, available for qualifying dependents who don't meet all the requirements for the Child Tax Credit, described below.
For married filing jointly taxpayers, the credit begins to phase out when AGI is $400,000. For all other taxpayers, the amount is $200,000. This phaseout applies to both credits.
In addition to the requirements for a qualifying child, the child must meet these requirements to qualify for the full $2,000 Child Tax Credit:
- The child has to be under age 17 at the end of the year. If he or she turns 17 on the last day of the year, that child is ineligible for the full $2,000 Child Tax Credit, but would qualify for the new $500 Credit for Other Dependents.
- You must claim the child as a dependent on your return.
- The child can’t have provided over half of their own support for the year.
- The child must have a Social Security Number.
Additional Child Tax Credit
The Additional Child Tax Credit (ACTC) is one poorly named tax break. The name doesn’t mean it’s a credit for an additional child; it’s an additional credit for a child. This credit is for parents who were not able to claim the full Child Tax Credit because it amounted to more than their tax liability. When part of the Child Tax Credit is unused, you may be able to get what's left as a refundable Additional Child Tax Credit. The credit amount is 15% of your taxable earned income in excess of $2,000, with a maximum of $1,400 per qualifying child. The requirements for this tax break are the same as the Child Tax Credit, plus you'll have to have at least $2,500 in earned income. Combat pay can count as taxable income to claim the credit.