Personal Exemption Deductions
The Tax Cut and Jobs Act (TCJA) suspended the calculation of the personal exemptions deduction when determining taxable income for years after December 31, 2017 and before January 1, 2026. In exchange, the Child Tax Credit was increased to $2,000 and a new $500 Credit for other dependents was created. While the deduction for personal exemptions no longer exists, the disclosure of dependents remains. The application of the statute defining who qualifies as a dependent(s), qualifying child or children and qualifying relative(s) will be used to determine if their expenses qualify as deductible or available to use in credit calculations.
Child Tax Credit
The maximum enhanced Child Tax Credit is $2,000 per qualifying child, of which $1,400 is the refundable portion. The taxpayer adjusted gross income phase-out thresholds are $400,000 for married filing joint and $200,000 for all others. For a dependent to qualify for the Child Tax Credit, they must have a Social Security Number, an ITIN can no longer be used. The eligibility requirements for the Child Tax Credit remain.
The new $500 Credit for other dependents is non-refundable. The Credit for other dependents is available for qualifying child(ren) for whom a child tax credit is not allowed and for other qualifying relatives. Therefore, a qualifying child who is over the age of 16, but does not meet eligibility requirements may still qualify for this credit. In addition, children with ITIN’s, who would otherwise qualify as dependents, may qualify for this credit.
Because the personal exemption(s) have been suspended and the amount of the exemption was reset to zero, the reference to gross income levels for dependents, qualifying child(ren) and qualifying relatives will be set at $4,150 for 2018 (adjusted for inflation in future years.). The Internal Revenue Service intends to issue proposed regulations clarifying the disconnect between the two statues that are used to determine eligibility for the credits; until those are published use Notice 2018-70 for guidance.
If you have any questions about the TCJA law changes, do not hesitate to contact me.
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