Dependents, Exemptions, and Credits via the Tax Cuts and Jobs Act
January 17, 2018
The new Tax Cuts and Jobs Act has significantly reworked the tax treatment of dependents.
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- Child Exemptions: The statute was kept in place but a new subsection was added that defined the exemption amount as zero. The significance is in the case of non-married parents, the definition of dependent stays in place with the provision that the parent with more than 50% custodial time may claim the exemption and the Child Tax Credit. A written release of the dependency exemption from the custodial parent to the non-custodial parent will still be required to release the exemption for the credit.
- Child Tax Credit: The Child Tax Credit (CTC) is increased from $1,000 to $2,000 per Qualifying Child. A Qualifying Child must be under 17 and reside more that 50% of the time with the parent (subject to the release noted above). The CTC is refundable up to $1,400 per child, i.e. if there is no tax due, the CTC will still be paid to the parent. The phase out of the credit begins at adjusted gross income of $400,000 for married couples and $200,000 for all other taxpayers.
- Other Credits: There is Partial Child Tax Credit of $500 allowed for those dependents who meet the tests of a Qualified Relative. A Qualified Relative has a certain relationship to a taxpayer (child, grandchild, parent, nieces, nephew, etc.), does not provide over one-half of his/her own support and lives in the same house as the taxpayer for more than half of the year. Children over 17, disabled children and parents may be covered by this provision.
The key feature is the increase to the Child Tax Credit and the reduction of the dependency exemption amount.
Richard J. Maloney, CPA, ABV Kevin C. Kennedy, CPA, CFE Jessica L. Parasco, CPA Janeen A. Sorrentino, EA