Raising children is expensive. That’s why, when it comes to filing your taxes, it’s helpful to take advantage of beneficial deductions and credits. However, with the new tax code that was passed by Congress last December, there are a number of changes that will affect taxpayers, particularly when you file in 2019. You’ll also want to remember that some things haven’t changed for the 2017 taxes you’ll be filing soon. For instance, your child may need to file his or her own taxes, if he or she has earned income, regardless of age.
With that in mind, bookmark these filing requirements for children this tax season.
[See: Answers to 7 Burning Tax Questions.]
1. You won’t be able to deduct your child on your taxes next year. Under the former tax laws, parents could deduct $4,150 for each child up to age 19 or up to age 24 for kids enrolled in college. But under the new tax code, you will no longer be able to take advantage of the deduction for the 2018 tax year. However, the standard deduction almost doubles under the new tax rules, which will offset losing personal exemptions.
For instance, if you’re married and filing jointly, your standard deduction goes from $13,000 in 2017 to $24,000 for 2018. If you’re divorced and with kids and are eligible to claim a head of a household deduction, you’ll see your standard deduction go up from $9,350 to $18,000 for 2018.
2. Parents can take advantage of a larger child tax credit. Parents can benefit from a $1,000 child tax credit when filing taxes for the 2017 tax year. However, when you file your taxes for 2018, you’ll receive $2,000 per child under the age of 17.
“This is a big change since the credit doubled and the phase-out almost quadrupled. Many more people will be able to take advantage of it,” says Jason Cross, a wealth advisor at Brightworth, a wealth management firm in Atlanta.
More people will be able to take advantage of the child tax credit, at least until some changes of the Tax Cuts and Jobs Act will expire in 2025. The tax credit was previously available to low- and middle-income households, but it has been expanded to reach more Americans. If your income is $200,000 and you’re a single taxpayer, or you’re married and filing jointly and making $400,000, your kids will be eligible for the credit for the 2018 tax year. If you make over $200,000 or $400,000 filing jointly, you will receive partial credit next year, when you file your taxes in 2019. And if you’re making over $240,000 or $440,000 filing jointly, the tax credit will disappear.
While this is beneficial if you have young kids, what if you have a 17-year-old? You will be able to get a $500 credit for dependents who are ineligible for the child tax credit. That would cover your 17-year-old, an 18-year-old or even a 32-year-old grad school student.
[See: 7 Most-Missed Tax Deductions and Credits.]
Another thing to remember, according to Mark Kohler, a certified public accountant and senior tax advisor at TaxSlayer, an online tax preparation software site: “The child must be under 17 at the end of the year for taxpayers to claim the credit.” He also points out that $1,400 of the $2,000 tax credit will be refundable, meaning you would be able to pocket that $1,400 in the form of a refund check even if you don’t owe any federal income tax.
3. Improvements to 529A ABLE accounts. Savings accounts, known as 529 ABLE accounts, a result of the Achieving a Better Life Experience Act of 2014, are operated by individual states and are designed for individuals with special needs. Tax-free money can be taken from such accounts if it is used to pay for qualified disability expenses, such as costs relating to education and job training.
“The new rules allow money in a 529 plan to be rolled into a 529A ABLE account without non-qualified distribution penalties as long as the beneficiary is the same individual,” Cross says. “Rollovers are restricted to the annual exclusion amount — $15,000 for 2018.”
4. There were changes made to 529 college savings plans. Are you struggling to pay the tuition for kids enrolled in private school? Or maybe your kids need extra help in school, and you’d like to pay for tutoring? Looking ahead to when you file taxes in 2019 (for the 2018 tax year), you’ll be able to apply the money you’ve been saving for college to go toward other forms of education, such as private school or tutoring, with up to $10,000 in annual distributions. You should also check and make sure your state laws correspond with the changes in the new tax code; otherwise, you could take that $10,000 out and face state penalties.
5. Some tax-filing rules have stayed the same. Is your child earning income? Then, your kid may need to file a personal income tax return. You can attach it to your file if your child is under age 19 or a full-time student under 24, and if your kid’s income is less than $10,500 and if the income is only from interest and dividends.
[See: 9 Red Flags That Could Trigger a Tax Audit.]
On the other hand, if your kid is earning income through a summer job or part-time one and made more than $6,350 in 2017, he or she will need to file, regardless of age. If your kid earns less than this amount, it’s still not a bad idea to file. He or she may be able to get a refund, after all.
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