The recently enacted Tax Cuts and Jobs Act (TCJA) made significant changes to income tax rates, exemptions, deductions, credits, and more. What does this mean for your family’s finances, specifically child-related tax credits?
Expansion of Child Tax Credit
TCJA doubles the child tax credit to $2,000 for each child under age 17. It also expands the number of families who can take advantage of this credit. Currently, the credit is available to joint filers with an adjusted gross income (AGI) of up to $110,000 and $75,000 for all other filers. Going forward, the credit will be available to joint filers with an AGI of up to $400,000 and $200,000 for all other filers.
New Qualifying Dependent Credit
For qualifying dependents other than children under 17, such as an elderly parent or college-aged children, the tax reform act includes a $500 credit, subject to the same income limits as the child tax credit.
No Change to Child and Dependent Care Credit and Flexible Spending Accounts
While tax reform made a number of changes, the Child and Dependent Care Credit remained intact. This credit allows parents to deduct qualified child care expenses such as day care or a nanny’s pay. The credit can be worth as much as $1,050 for one child under 13 or $2,100 for two children.
Flexible Spending Accounts (FSA) have also been left in place. Parents can set aside up to $5,000 in pre-tax dollars through paycheck deductions and then use that money for qualified expenses.
Expansion of 529 Plans
529 plans, tax-advantaged accounts for parents to save for their children’s college education, may now be used to pay for K-12 education tuition and related educational materials and tutoring. Up to $10,000 per year from 529 accounts can be used tax-free.
For tax advice specific to your situation, consult your accountant or other tax professional.