Although families with several children may feel the sting from the repeal of the personal exemption, there’s some good news. Not only has the Child Tax Credit been increased, but more of the credit now is refundable and the income limitations are far less restrictive.
Briefly, it’s important to mention that a credit is very different from a deduction.
While a deduction lowers the amount of income that the government considers when taxing you, a tax credit actually reduces the amount of tax you owe, dollar for dollar. If you owe $1,000 in tax, a $1,000 credit would pay it off for you while a deduction just would lower the income level that your tax rate would apply to. In other words, a $1,000 credit is far more valuable than a $1,000 deduction.
Tax reform was good for the Child Tax Credit, which was doubled to $2,000 per qualifying child under age 17. As much as $1,400 of this amount is refundable — meaning that it can be claimed even if the taxpayer’s federal income tax liability is already zero. So even if a parent has little income or otherwise owes no federal income taxes, they could still take advantage and get this money back.
Furthermore, the income phase-out thresholds are significantly higher than the previous levels, which makes the credit available to far more Americans than in previous years. Several tax breaks phase out above certain income levels. The reason is that many tax benefits are intended to benefit low- to moderate-income taxpayers, not the rich. However, the range of people who can benefit from the Child Tax Credit has been significantly expanded.
| Tax Filing Status | Maximum AGI for Full Credit | AGI Where Credit Disappears |
|---|---|---|
| Single | $200,000 | Over $240,000 |
| Married Filing Jointly | $400,000 | Over $440,000 |
| Head of Household | $200,000 | Over $240,000 |
| Married Filing Separately | $200,000 | Over $240,000 |
DATA SOURCE: IRS.