Child tax credit, EIC and dependent care?
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Level 2

Child tax credit, EIC and dependent care?

1. Can you explain how the new Tax code impacts EIC ? What is IEC and how does it apply to a moderate income (70k) as opposed to someone who makes $130k  a year?
 
I was told EIC is earned income credit.  It is generally for people making middle to lower incomes and is a huge tax benefit and it benefits a qualified parent who is in the middle to low income bracket. Is this an exemption or is it something else? Does this apply to people who make above $130k a year? Who does it make more of a credit for? Who should it be applied to?

2. Can the custodial parent who qualifies claim the dependent or child care tax credit as an exemption? Or some sort of benefit? What are the criteria to be able to make this claim? I generally pay over $6000 a year in child care while I work. Her father pays for no childcare. Does this not apply to someone who makes over X$ a year?
 
Does it have to be the custodial parent or can it be either the custodial or non custodial (basing that off of the parent who has the child at least half the nights or is the residential parent as defined in IRS law) or is that it-relevant? As I understand it’s an exemption where you reduce your taxable income by the amount of dependent care paid for to a provider while the parent is working. If it’s not an exemption can you explain how it is applied to a parent who pays this? 

3. The child tax credit - my understanding is this applies to the residential or custodial parent who has the child for more than half the year?  Is this a flat credit or the same for anyone who makes less than $200k? 
 
What are the child related exemptions or deductions that changed or went away with the new 2018 tax code?
 
Thank you for your help. If you can help me clarify and use the correct terms  with the relevant federal or its law that would be appreciated. My family law attorney is confused about the new tax code.
3 Replies
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Level 15

Child tax credit, EIC and dependent care?

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Level 15

Child tax credit, EIC and dependent care?

There are several child-related credits you *may* get if you have a dependent child.

You might be getting the Child Tax Credit--that is not all a refund--it lowers the tax you owe, up to $2000 per child, but if you do not owe tax then you may not get the full amount of CTC.  In some cases, you could qualify for the "Additional Child Tax Credit" which is a refundable credit, and would increase your refund.  If you qualify for this credit, TurboTax calculates and automatically adds it to your refund.

You might be able to claim the child and dependent care credit if you paid someone to take care of your child so you could work. This is not a refundable credit, so it will not be in your refund.  It can lower the tax you owe.

You might qualify for Earned Income Credit, which is a refundable credit if you worked and earned income. The EIC is based on the amount you earned.  If you do qualify for EIC, TurboTax automatically calculates the amount and adds it to your refund.

 

 

 

Look at your 2018 tax return to see the child-related /dependent credits you received:

Child tax credit line 12a

Additional Child Tax Credit line 17b   (schedule 8812)

Credit for Other Dependents line 12a

Earned Income Credit (EIC) line 17a

Child and Dependent Care Credit line 12     (comes from Schedule 3 Form 2441)

 

The dependents you listed are on the first page of your Form 1040 below your address.

 

https://ttlc.intuit.com/questions/1900923-what-is-the-child-tax-credit

https://ttlc.intuit.com/questions/1900643-what-is-the-child-and-dependent-care-credit

https://ttlc.intuit.com/questions/1899157-what-are-the-qualifications-for-the-earned-income-credit-e...

https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/use-the-eitc-assistant

https://ttlc.intuit.com/questions/4499708-what-is-the-500-credit-for-other-dependents-family-tax-cre...

 

 

There has been lots of hype in the news about the new $2000 Child Tax Credit.  Unfortunately, some people do not yet understand that it does not mean they will automatically receive $2000 per child just for filing a tax return.

Do not assume your refund will include $2000 per child for child tax credits.  It does not work that way.  The CTC is used first to reduce your tax liability to zero. After that, there is a refundable portion —up to $1400 — called the Additional Child Tax Credit that is calculated based on the amount of income you earned.  You do not necessarily get the maximum amount.  You get 15% of the amount of income earned above $2500--UP to the maximum amount possible.

 

If your child turned 17 in 2018, even on the last day of 2018, you do not get the child tax credit.  There are no exceptions to the rule.  You can still claim your child as a dependent.

Your child must have a Social Security number to get the CTC. 

If your child was born in 2018 you need to say the child lived with you for the WHOLE year.

If your child lived with you for less than half the year you cannot get CTC.

If you did not earn at least $2500 you cannot receive the child tax credit.  Beyond that amount the CTC you receive is affected by your tax liability and the amount you earned.  You might not get the full $2000 of CTC.

 

The child tax credit is reduced by $50 for every $1000 of AGI over these limits:

Married filing jointly                $400,000    (CTC disappears at $440,000)

 

Single, Head of Household, Married Filing Separately or qualifying widower               $200,000  (CTC disappears at $240,000)

 

Look at your 2018 tax return to see the credits you received:

Child tax credit line 12a

Additional Child Tax Credit line 17b   (schedule 8812)

Credit for Other Dependents line 12a

 

https://ttlc.intuit.com/questions/1900923-what-is-the-child-tax-credit

 

 

As for your questions about custodial and non-custodial parents--either divorced or never-married parents.  The custodial parent has the right to get Earned Income Credit (IF they have the income earned from working that falls within the parameters to receive EIC), the childcare credit, and may file as Head of Household.  

 

If the custodial parent signs a Form 8332, then the non-custodial parent can get the child tax credit.  The non-custodial parent cannot get EIC for the child nor claim the child care credit, nor can the non-custodial parent file as Head of Household based upon claiming that child.

 

The thing that "went away" with the new tax law is the personal exemption you used to be able to get for each dependent.  In 2017, you could get a personal exemption of $4050 for each dependent claimed--which lowered the amount you were taxed on.  Personal exemptions were eliminated by the new tax laws for 2018 and beyond.  But your standard deduction almost doubled.

**Disclaimer: Every effort has been made to offer the most correct information possible. The poster disclaims any legal responsibility for the accuracy of the information that is contained in this post.**
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Level 15

Child tax credit, EIC and dependent care?

1. $70K is too much income for EIC.  $46,000 is the limit for a single parent with one child.  

 

2. Only  the custodial parent can claim the dependent care tax credit, even if the non custodial parent is claiming the child as a dependent.*  It is a direct reduction of tax due, not an income  deduction or exemption. There is no income limit.  It cannot be the non custodial parent. The credit is 20-35% of the amount you paid for child care, up to $3000. For someone making $70K, the credit is 20%. So paying $6000 for one child will get you a $600 tax reduction (20% x $3000 = $600).
 
3. The child tax credit is a straight $2000 per child, under 17, for anyone making less than $200K and more than roughly  $15K (it's a complex phase-in).  It goes to the parent claiming the child as a dependent**, and not automatically to the custodial parent.
 
*There is a special rule in the case of divorced & separated (including never married) parents. When the non-custodial parent is claiming the child as a dependent/child tax credit; the custodial parent is still allowed to claim the same child for Earned Income Credit, Head of Household filing status, and day care credit. This "splitting of the child" is not available to parents who lived together at any time during the last 6 months of the year; then only one of you can claim the child for any tax reasons. The tax benefits may not be split in any other manner.

Note in particular that the non-custodial parent can never claim the Earned Income Credit, Head of Household filing status or the day care credit, based on that child, even when the custodial parent has released the dependency to him.

 So, it's good idea to let the other parent know that you will be claiming those items, as many first time divorced parents are not aware of this rule and may try to claim those items, which will cause the IRS to send out letters.

Ref: https://www.irs.gov/publications/p17#en_US_2017_publink1000170897

Scroll down to "Children of divorced or separated parents (or parents who live apart)"

 

**The custodial parent has first priority on claiming the children on her taxes; regardless of the amount of support provided by the non-custodial parent. The IRS goes by physical custody, not legal custody. The non-custodial parent can only claim the child as a dependent if the custodial parent gives permission (on form 8332) or if it's spelled out in a pre 2009 divorce decree. (without conditions - usually the payment of child support). Even if a divorce decree, dated after 2008, gives the non-custodial parent the right to claim the child, he must still get form 8332 from the custodial parent. A properly worded decree should require her to provide that form. 

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