03 Jan Tax Law Changes That May Affect Your Family
Your family dynamic will determine how much the Tax Cuts and Jobs Act affects your taxes. Here is a list of family-related tax law changes that may impact your tax return.
How did tax reform affect the Child Tax Credit?
If you took advantage of the Child Tax Credit in tax year 2017, you were able to claim a $1,000 credit on your tax return for each qualifying child. That credit has now doubled to $2,000 per qualifying child.
This credit was nonrefundable before the TCJA. Now, the refundable portion is equal to 15% of your earned income over $2,500, up to $1,400.
(Your salary – $2,500) x .15
In order for your child to qualify for the new credit, they must meet all of the requirements on the Child Tax Credit Test.
Child Tax Credit Test
- The child must be 16 years old or younger on the last day of the tax year.
- The child must be related to you. This includes your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, your grandchild, niece or nephew, or legally adopted child.
- You must claim the child as a dependent on your federal tax return.
- The child must be either a U.S. citizen, U.S. national, or U.S. resident alien with a valid Social Security number.
- The child must have lived with you for more than half of the tax year. Note: there are exceptions to the residency test, such as absences related to school, vacation, military service, and medical care.
- The child must not provide more than half of his or her own support.
The Child Tax Credit phases out for married taxpayers filing jointly with an adjusted gross income (AGI) of more than $400,000 ($200,000 for all other taxpayers).
Are there any new credits for families?
If you have a dependent who does not qualify for the Child Tax Credit because they are over 16, they may still be eligible for a $500 nonrefundable credit under the TCJA. This credit also applies to most elderly and disabled dependents.
How did the personal exemption and standard deduction change?
If you filed your taxes for any tax year before 2018, you should have received a personal exemption of $4,050 for yourself and each of your dependents.
The TCJA eliminated the personal exemption but increased the standard deduction. Learn more about the standard deduction here.
How was the 529 savings plan expanded?
For many parents, saving money to send kids to college is a priority, but even putting your kids through kindergarten can be expensive. If you have been saving money for higher education with a 529 savings account, there are new advantages under the TCJA. With the old tax laws, your 529 could only be used at eligible colleges and universities. Under the new laws, you can use your plan to cover up to $10,000 per year of qualifying expenses for any school (public, private, or religious) and any grade from kindergarten through 12th as well.
How did tax reform change the kiddie tax?
The kiddie tax is an additional tax for those under age 18 with unearned income over $2,100. It can also apply to certain individuals older than 18. Unearned income can include dividends, capital gains, interest on investments, etc. The kiddie tax was applied at the parents’ tax rate prior to the TCJA. As of tax year 2018, qualifying income is now taxed at the rate for trusts and estates. Those rates for tax year 2019 (taxes filed in 2020) are:
|Unearned Income Between||Tax Due|
|$0-$2,600||10% of taxable income|
|$2,601-$9,300||$260 + 24% of the amount over $2,600|
|$9,301-$12,750||$1,868 + 35% of the amount over $9,300|
|$12,751+||$3,075.50 + 37% of the amount over $12,750|
How do you know if your refund will go up or down in 2019? Give us a call today.