As I am sure you have heard, Congress passed and the President signed into law the biggest federal tax reform bill since 1986.
One of the new provisions you might be able to take advantage of is what the definition of a “child” is.
Under the Tax Cuts and Jobs Act of 2017, the Child Tax Credit was increased from $1,000 to $2,000, of which $1,400 is actually refundable (meaning if your taxes get reduced before withholding to zero, up to $1,400 per child can be refunded to you). At the same time, the personal exemptions, a deduction of $4,150 per dependent (plus taxpayer and/or spouse) were repealed. At the same time a $500 “dependent” tax credit (usually called a family credit) is allowed for each “Qualifying Dependent” on the tax return (partially making up for the loss of personal exemptions.) (Simple, huh?)
Now, the definition of a “Qualifying Dependent” is any dependent who is not a “Qualifying Child”, while any “Qualifying Child” is defined on the 1097 page Reconciliation Agreement that ended up becoming the bill signed by the president as anyone that qualifies for the Child Tax Credit, meaning a child under 17 that qualifies as your dependent. Based on that definition, any qualified dependent you have that is not a “Qualifying Child” becomes a “Qualifying Dependent,” meaning they qualify for the family credit of $500 per dependent. (See how easy this is?)
Now, what about a child of yours that is going to college and qualifies as your dependent even though they made more the maximum income requirement (that doesn’t apply to a child under 24 who is a student that you provide half of their support to.) They are a “Qualifying Dependent” even though they are your child and should give you the $500 credit (plus they may qualify for the $2,500 American Opportunity Credit.) Your older child who never went to college and is working one day a month at Burger King making $3000 a year? They are also a “Qualifying Dependent” and qualify for the credit. Your deadbeat boyfriend may also qualify for the credit, but since he is not your child (I hope), this strays a little from the “Your Child not being your Child” point of this.
Now, remember, this is based on the Reconciliation Agreement information; changes could be happening when technical corrections and IRS Guidance come out. We will have to wait until then to confirm this 100%.
Anyway, sometimes your child not being your child can save you some taxes!
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