As part of President Trump’s tax reform, changes have been made to the U.S. Child Tax Credit (CTC). Thankfully, these changes to the Child Tax Credit (CTC) are for the better. Many more families may benefit from these changes.

The following article outlines how these rules have changed.

U.S. Child Tax Credit

The Child Tax Credit (CTC) is a tax credit available to all parents with qualifying children under age 17 in a given tax year.  To qualify, the child must:

  • be under age 17 at the end of the tax year
  • be a citizen or resident of the United States
  • have a Social Security Number (SSN).
  • not have provided over half of his/her own support for the tax year
  • lived with the taxpayer for more than half of the tax year
  • be the taxpayer’s:
    – child, stepchild, adopted child or a descendant of one (for example, a grandchild), or eligible foster child
    – brother, sister, stepbrother, stepsister, or a descendant of one of the taxpayers

Note that, under the old rules, taxpayers could claim the Child Tax Credit by filing an amended return in a later year if the child did not have a Social Security number at the time the tax return was due. This provision has been eliminated for 2018.  It is important, therefore, that the dependent apply for an SSN.

Keep in mind, that the CTC is a credit, not a deduction. That is, a deduction reduces the amount of income on which tax is calculated, a credit reduces the amount of tax owing dollar-for-dollar. When a taxpayer’s child tax credit is more than their tax liability, they may be eligible to claim an additional refundable child tax credit as well as the child tax credit.

Basically, three changes were made to the Child Tax Credit (CTC) rules, which are as follows:

Increased Child Tax Credit Benefit Amount

Prior to 2018, the child tax credit was $1,000. Beginning in 2018, the Child Tax Credit benefit amount has  increased to $2,000 per qualifying child. For example, if you have three qualifying children, you may end up receiving $6,000 of this tax credit.

Expanded Income Threshold Limits

The income threshold limits to qualify for the child tax credit have also increased. In the previous tax years, the credit was only available for low-income to middle-income households. The tax credit began to phase out for married couples earning $110,000 and for single filers at $75,000.

However, beginning 2018, this tax credit may be claimed by more taxpayers as the phase-out threshold have been increased as follows:


Tax Filing Status AGI when Phase-Out Begins AGI Where Credit Disappears
Single $200,000 Over $240,000
Married filing jointly $400,000 Over $440,000
Head of household $200,000 Over $240,000
Married filing separately $200,000 Over $240,000

Note that if a taxpayer has an income level that falls between these two income thresholds, a partial credit may still be claimed. The phase-out is equal to  $50 for every $1,000 of the modified adjusted gross income (MAGI) that exceeds the lower threshold.

Increase in Refundable Credit

A tax credit is useful in reducing one’s tax bill. Taxpayers are entitled to two types of credits – Nonrefundable and Refundable credits.

Nonrefundable credits are used to reduce tax but not below zero.  That is, if the person has a tax liability of $2,500, and they qualify for $2,000 tax credit, they can use the credit against the tax bill and pay the remaining tax liability of $500.

Refundable tax credits are treated as payments of tax.  When the credit is greater than the tax owing, the taxpayer will receive a refund.

For example, if the person has a tax liability of $1,500, and they qualify for a $2,000 tax credit, they can use the $2,000 tax credit against the tax bill of $1,500.  If the tax credit is refundable then the remaining $500 tax credit can be refunded. If the tax credit is non-refundable, then the remaining $500 tax credit amount is wasted.

When is Child Tax Credit Refundable?

When a taxpayer’s child tax credit is more than their tax liability, they may be eligible to claim an additional refundable child tax credit as well as the child tax credit.  This additional child tax credit has increased to $1,400. up from $1,000 per qualifying child.   This amount will be adjusted for inflation after 2018.

In addition to the requirements above, taxpayers must meet a taxable earned income requirement to claim this credit.  The income threshold to claim the credit has been lowered to $2,500 per family, which means that a family must only earn $2,500 or more to claim the credit.  If the earned income is greater than $11,833, the refundable credit amount is capped by the $1,400 limit, and if it is less, the refundable portion of the credit will be reduced.

For example, if a family earned 12,000 they would forfeit $25. of refundable credit calculated as $12,000 less $2500 at 15% is $1425.  Because the cap is $1,400 they lose the $25.00.

Even with the earned income threshold at $2,500, some of the poorest American families will not qualify for the refundable portion or will only qualify for a portion of refundable portion, if they don’t have enough earned income.. A family with earned income of $10,000 would receive only $1,125 under the new law.

Additional Family Credit as a Part of The Child Tax Credit

In addition to the changes in the CTC, the tax reform bill introduced a new nonrefundable $500 “family credit” for dependents other than a child. Examples might include an aging parent who depends on the taxpayer for care or a child who is 17 years old or older but supported by the taxpayer.  This credit is subject to the same phase-out thresholds as the CTC.

Unfortunately, these additional benefits replace the exemptions previously allowed for dependents. From tax year 2018 onward, the personal exemption deduction for yourself and dependents will no longer available.

As a good tax practice, taxpayer’s should start to plan and prepare for their 2018 tax return now to use these tax breaks in the most advantageous manner. Moreover, if your tax situation is complex, contact a tax practitioner for proper analysis of your tax situation, and beneficial tax tips.

AG Tax LLP Can Help

If you  have any other tax-related queries, and/or need assistance with tax planning/filing please contact AG Tax. Our tax professionals are highly-experienced with U.S. and Canadian tax laws and can provide you the right guidance to handle your tax situation.

Aylett Grant Tax LLP is a full service accounting firm with a dedicated team of experts, who are highly-qualified and experienced in handling situations related to U.S., Canada and other international tax laws.

We can assist with:

  • Canadian Personal and corporate tax returns
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