Your children could be key to tax breaks, bigger refund

When you’re trying to get the biggest tax refund possible, don’t forget the kids.

Sure, parents can grumble every day about how much they’re spending on everything from diapers for newborns to hockey lessons for grade-school athletes. But the closer you get to April 15, well, the more you love about packing school lunches.

“People know that having children helps their taxes,” said Lynn Ebel, director of the Tax Institute at H&R Block.

Key changes for families took place in the Tax Cuts and Jobs Act of 2017. Even so, many tax breaks relating to children and education remain in place on the 1040 form for 2018. And some breaks are even are better than what was allowed earlier.

Here are some answers to questions parents may have about their tax situation:

WHAT KIND OF TAX BREAKS APPLY TO CHILDREN?

The 2018 tax return includes an increased Child Tax Credit, as well as a new $500 nonrefundable credit for other dependents.

This is good news for many families, even those with higher incomes.

Taxpayers who qualify can claim up to $2,000— instead of $1,000—for children who are under age 17 as of Dec. 31. The child must be claimed as a dependent on your tax return. The child also must have a valid Social Security number.

More families can claim the Child Tax Credit now that higher income limits were put in place as part of the Trump tax package.

The income threshold jumps all the way to $400,000 for married filing jointly and $200,000 for others before any phaseout.

Under the old tax law, the adjusted income limits were far lower: $75,000 for singles; $110,000 if married filing jointly.

Another plus: The Additional Child Tax Credit, now worth up to $1,400 per qualifying child, is available as a refundable credit for those with earned income of more than $2,500. As a result, some struggling families can get refunds even if their taxes are zero. The credit is based on earned income.

WHAT IF YOUR CHILDREN WERE 17 OR OLDER IN 2018?

A new credit, often called the Credit for Other Dependents, offers $500 for each qualifying child or other dependent relatives, such as older relatives in your household, if they do not qualify for the child tax credit.

For this new credit, the dependent does not need a valid Social Security number. An Individual Taxpayer Identification Number or Adoption Taxpayer Identification Number would work.

WHAT EXACTLY IS A DEPENDENT?

Keep in mind that the basic rules for claiming a dependent still apply, even though the personal tax exemption was eliminated under the Tax Cuts and Jobs Act and the amount itself now is zero, said Marshall Hunt, a certified public accountant and director of tax policy for the Accounting Aid Society’s tax assistance program in metro Detroit.

So if you’re claiming credits, such as the Earned Income Tax Credit, you need to be careful about who is a dependent and who isn’t.

A good example is a full-time college student age 19 or over but under 24.

Hunt said if a college-age child stays in school they can be a viewed as a qualifying child on the parent’s return for the Earned Income Tax Credit and the credit for other dependents, even if the student is working.

There is no gross income limit as long as the student doesn’t provide more than half of his or her own support.

“However, if they don’t stay as a full-time student for any part of five months or are disabled, they will not be a qualifying child for the EITC,” Hunt said.

“And, if they make $4,150 or more, they will also not be a dependent qualifying for the credit for other dependents.”

DID YOU LOSE A

TAX BREAK FOR CHILDREN?

Maybe—if your kids are older.

“Most families will be impacted by the loss of the personal exemption,” H&R Block’s Ebel said.

Under the tax overhaul, personal exemptions are no longer used or allowed. On last year’s tax return, a personal exemption was $4,050 per person.

“And this year, that’s zero,” Ebel said. “Obviously, if you have any dependents that’s going to impact you.”

The higher $2,000 Child Tax Credit—which reduces your tax bill dollar-for-dollar—can be a help if your children were under age 17 as of Dec. 31. The new $500 is some help for older children but it’s not as good as the $2,000 credit for younger children.

Ebel said some families may want to adjust their W-4 at work to withhold more for taxes if their children turn 17 this year.

Remember, you need to look at the age of your child on the very last day of the year. If the child is 17 or older then, you no longer qualify for the $2,000 credit.