The 2018 tax reform brought sweeping changes to the federal tax code, significantly impacting how families claim benefits for raising children. Among these changes, updates to the child tax credit were some of the most notable. These updates expanded eligibility, increased the credit amount, and made a portion of the credit refundable for qualifying families. Understanding how these changes work and how they affect different income groups can help families take full advantage of potential tax savings.
The Basics of a Tax Credit
A tax credit is a direct reduction of your total tax bill. Unlike a deduction, which decreases your taxable income, a credit subtracts from the taxes you owe. For example, if you owe $1,200 in federal taxes and qualify for a $500 tax credit, your tax liability is reduced to $700. This dollar-for-dollar reduction is why credits are often considered more beneficial than deductions, especially for families working to lower their overall tax burden.
Tax credits are applied when completing Form 1040, the main document for filing individual federal income taxes. The second page of this form is where credits like the child tax credit are entered and subtracted from your calculated tax.
The Purpose Behind the Child Tax Credit
The child tax credit was introduced in 1998 to help families offset the rising costs of raising children. Originally, it offered a $400 credit for each qualifying child under the age of 17. Over time, the amount of the credit increased. By 2017, the credit was worth $1,000 per child, with income-based phaseouts for higher-earning households. However, the credit was largely non-refundable, meaning it only helped reduce tax liability and did not provide a refund if no tax was owed.
Impact of the Tax Cuts and Jobs Act (TCJA)
Signed into law in late 2017, the Tax Cuts and Jobs Act introduced substantial reforms that went into effect beginning with the 2018 tax year. One of the law’s main goals was to simplify the tax system while offering more support to working families. Changes to the child tax credit were part of this broader initiative, designed to expand the number of families eligible and increase the value of the credit.
Increase in the Credit Amount
The most immediately noticeable change to the child tax credit was the doubling of the credit amount from $1,000 to $2,000 per qualifying child. To claim the credit, the child must be under the age of 17 at the end of the tax year, live with the taxpayer for more than half the year, and be claimed as a dependent. This change meant that a family with two qualifying children could potentially reduce their federal tax bill by $4,000.
By doubling the credit, lawmakers aimed to counteract the elimination of the personal exemption, which previously provided a tax break for each dependent. This shift allowed the child tax credit to play a larger role in supporting families financially.
Refundable Portion Introduced
Another key update in 2018 was the addition of a refundable portion of the child tax credit. Under the previous rules, the credit was non-refundable, meaning families with little or no tax liability received limited or no benefit. With the new law, up to $1,400 of the $2,000 credit became refundable.
This refundable portion is referred to as the additional child tax credit. It allows families to receive a portion of the credit as part of their tax refund, even if their total tax liability is zero. This change made the credit far more inclusive, offering meaningful financial support to low-income families who may not otherwise benefit from non-refundable credits.
Earned Income Requirement Lowered
To claim the refundable portion of the child tax credit, a family must meet a minimum income threshold. Prior to 2018, that threshold was higher and excluded many lower-income households. The tax reform law lowered the earned income requirement to just $2,500. This made it easier for families with modest earnings to access the refundable portion of the credit, broadening its reach to more households across the country.
A family earning at least $2,500 could now claim the refundable amount based on a portion of their income. This allowed part-time workers, seasonal employees, and others with limited earnings to benefit from the expanded credit.
Higher Phaseout Limits
Before the 2018 changes, the child tax credit began to phase out for individuals earning more than $75,000 or couples earning more than $110,000. The phaseout process reduced the amount of the credit gradually as income exceeded these thresholds, eventually eliminating it altogether for higher earners.
The tax reform significantly raised these limits. The phaseout now begins at $200,000 for single filers and $400,000 for married couples filing jointly. This allowed many middle- and upper-middle-income families, who previously earned too much to qualify, to benefit from the child tax credit for the first time or at a higher level than before. By increasing the income threshold, the new law aimed to provide broader access to the credit while ensuring that more families could receive support regardless of their tax bracket.
Social Security Number Requirement
As part of the changes, the law added a requirement that each qualifying child must have a valid Social Security number to be eligible for the credit. This rule applies only to the $2,000 child tax credit and not to other dependent-related credits.
Children who do not have a Social Security number, including those with only an Individual Taxpayer Identification Number (ITIN), are ineligible for the $2,000 credit. However, the taxpayer may still qualify for a smaller credit available for other types of dependents. This provision was added to ensure the credit is used only for children legally residing in the United States and to help prevent improper claims.
Why These Changes Matter
The 2018 updates made the child tax credit more generous, refundable, and widely available. Families with children under 17 now have an opportunity to significantly reduce their tax burden or even receive a larger refund, depending on their income and other tax-related factors. For households with multiple children, the total credit can amount to thousands of dollars, which can be a substantial financial benefit when it comes time to file.
These changes also have implications for tax planning throughout the year. With the increased value of the credit and the option to receive part of it as a refund, families may see changes in their paycheck withholdings and estimated tax payments. It is essential to understand how the credit works to avoid surprises when filing your return.
Eliminating the Personal Exemption
One of the major trade-offs in the tax reform was the elimination of the personal exemption, which previously allowed taxpayers to deduct a set amount for each member of their household, including themselves and their dependents. This change increased taxable income for many households.
However, the doubling of the child tax credit and the expansion of the standard deduction were designed to offset the loss of the personal exemption. In practice, many families found that their overall tax liability decreased or remained stable under the new system, thanks in part to the enhanced child tax credit.
Using IRS Forms to Claim the Credit
To claim the child tax credit, taxpayers must file Form 1040 and complete the appropriate sections to calculate eligibility and credit amounts. Dependents must be properly listed with their Social Security numbers, dates of birth, and other identifying information.
In some cases, families may also need to complete Schedule 8812, which is used to calculate the refundable portion of the credit. This form helps determine whether a taxpayer qualifies for the additional credit and how much can be added to their refund.
Coordination with Other Tax Benefits
While the child tax credit is one of the most valuable family-related tax benefits, it often interacts with other tax provisions. For instance, families who claim the child and dependent care credit, earned income tax credit, or education credits should be aware of how each affects their overall refund or liability.
Proper coordination among credits can help maximize the total tax benefit. In some cases, eligibility for one credit may reduce or eliminate eligibility for another. Understanding the relationship between these provisions can help avoid errors and ensure the full benefit of available credits is received.
Recordkeeping and Documentation
To avoid delays in processing your return or issues with the IRS, it is essential to maintain accurate records. This includes birth certificates, Social Security cards, school records, or other documentation verifying your relationship to the child and the number of days the child lived with you during the tax year.
Keeping good records is especially important if your filing status changes, such as in cases of divorce, custody arrangements, or remarriage. The IRS may request documentation to verify that a child qualifies, particularly if multiple people attempt to claim the same dependent.
Awareness of Expiration Date
The enhanced child tax credit provisions introduced in 2018 are temporary. Unless Congress acts to extend them, they are scheduled to expire after December 31, 2025. After that date, the credit may revert to the pre-2018 amount and structure, or new legislation may modify it further.
Families should stay informed about tax law changes and consider the possibility of adjustments in future years. Tax planning strategies that rely heavily on the expanded credit may need to be revisited if the current rules are not extended.
Expanding Support Beyond Children Under 17
The 2018 tax reform addressed a key limitation in the prior child tax credit rules. Previously, tax benefits were largely concentrated on families with children under age 17. Once a child passed this age or failed to meet the definition of a qualifying child, the available credits dropped significantly.
To offer financial support to a broader group of taxpayers, the tax law introduced a $500 non-refundable credit for dependents who do not meet the qualifying child criteria. This new provision is often referred to as the credit for other dependents and can include college students, elderly parents, or disabled adult children, provided they meet the necessary IRS criteria.
Defining a Qualifying Child
Before understanding who falls under the other dependent category, it’s important to define who qualifies for the standard child tax credit. A qualifying child must meet the following conditions:
- Be under age 17 at the end of the tax year
- Be a U.S. citizen, national, or resident alien with a valid Social Security number
- Have lived with the taxpayer for more than half the year
- Be claimed as a dependent on the taxpayer’s federal return
- Not have provided more than half of their own financial support
If a child fails to meet even one of these requirements, the full $2,000 credit is unavailable. However, the taxpayer may still be eligible for the $500 credit if the dependent meets other criteria.
Who Qualifies as an Other Dependent?
The $500 credit for other dependents is designed for individuals who do not qualify under the child tax credit guidelines but still meet the IRS definition of a dependent. These dependents may include:
- Children age 17 or older
- Full-time college students under age 24
- Disabled adult children
- Parents or other relatives supported by the taxpayer
To be eligible, the dependent must be a U.S. citizen, U.S. national, or U.S. resident alien. Unlike the child tax credit, a Social Security number is not required to claim the $500 credit, although an Individual Taxpayer Identification Number (ITIN) is needed.
The person must also pass the support test, meaning the taxpayer must provide more than half of their total financial support for the year. In addition, the dependent must not file a joint return with a spouse unless it’s solely to claim a refund of withholding.
The Non-Refundable Nature of the $500 Credit
While the child tax credit includes a partially refundable component, the credit for other dependents is entirely non-refundable. This means it can reduce your tax liability to zero but will not result in a refund if you do not owe any tax.
For example, if you owe $800 in taxes and claim one other dependent, your tax liability could drop to $300. But if your tax bill is already zero, the $500 credit will not add to your refund. While this makes the credit less impactful for low-income taxpayers, it still offers relief for those with some tax obligation.
Common Situations Where the $500 Credit Applies
Many households benefit from the $500 credit under everyday family scenarios. Some common situations include:
- Parents with a child who turned 17 during the tax year
- Families with dependent college students still living at home
- Adult children supporting aging parents
- Households caring for relatives with permanent disabilities
These situations often involve continued financial responsibility, even though the individual may no longer qualify for the full child tax credit. The other dependent credit provides at least partial relief in these cases.
Dependency Tests You Must Meet
To claim any dependent-related tax credit, the person must pass a series of tests defined by the IRS. These include:
Relationship Test
The dependent must be related to the taxpayer in specific ways, such as being a child, stepchild, sibling, parent, or grandparent. In some cases, extended family members like aunts, uncles, or in-laws can qualify, but unrelated individuals generally do not unless they live in the taxpayer’s home for the full year and meet all other tests.
Gross Income Test
For the person to be claimed as a dependent other than a qualifying child, their gross income must be below a certain limit. This amount is adjusted annually and includes income from wages, interest, pensions, and other sources. For instance, if a dependent earned $5,000 in part-time work and the income threshold is $4,700, they may not qualify.
Support Test
The taxpayer must provide more than 50 percent of the person’s total financial support for the year. This includes costs such as housing, food, education, clothing, and medical care. Support received from other sources—like Social Security, scholarships, or the dependent’s own income—must be taken into account.
Importance of Accurate Recordkeeping
Because the credit for other dependents relies on proving eligibility through relationship, support, and income, taxpayers should maintain detailed records. Documentation can include:
- Proof of residence (such as utility bills or school enrollment)
- Medical or financial support receipts
- Records of household expenses and contributions
- Proof of the dependent’s gross income
If the IRS audits a return that includes dependent claims, having this information organized can help resolve disputes and avoid penalties.
Interaction with Other Family-Related Tax Benefits
Taxpayers claiming dependents often qualify for more than one type of tax benefit. In addition to the child tax credit and the other dependent credit, available options may include:
- Dependent care credit for childcare expenses
- Education credits for tuition and related costs
- Head of household filing status for greater standard deduction
- Earned income tax credit based on income and family size
Understanding how these benefits overlap or conflict is essential for maximizing your refund or reducing your liability. For example, a taxpayer may claim both the $500 credit and an education credit for a college-aged child, but must be careful not to double-dip or misreport eligibility.
Claiming Multiple Types of Dependents
Many households have a mix of qualifying children and other dependents. A family might have a 15-year-old who qualifies for the $2,000 child tax credit and a 19-year-old college student who qualifies for the $500 other dependent credit. In these cases, both credits may be claimed on the same return, provided the dependents meet all eligibility rules.
Families with multiple dependents may need to complete additional worksheets or schedules to calculate their total credit amount correctly. In some cases, the use of supplemental forms may be required, particularly when claiming the refundable portion of the child tax credit.
Phaseout Rules Apply to Both Credits
The phaseout thresholds established under the 2018 tax law apply to both the child tax credit and the other dependent credit. Once a taxpayer’s modified adjusted gross income exceeds $200,000 ($400,000 for joint filers), the available credit is gradually reduced.
The phaseout reduces the credit by $50 for every $1,000 of income above the threshold. For example, if a married couple has a modified adjusted gross income of $420,000, their total credit amount would be reduced by $1,000. This rule ensures that both credits primarily benefit middle- and upper-middle-income families, while limiting access for very high earners.
Annual Updates and Inflation Adjustments
While the $2,000 child tax credit amount and $500 other dependent credit were fixed under the 2018 law, the refundable portion of the child tax credit is adjusted annually for inflation. The IRS publishes updated figures each year, which may affect eligibility thresholds and refundable amounts.
Staying updated with IRS guidelines and income thresholds is important for proper tax planning. Taxpayers should review changes annually, especially if their income fluctuates or if a dependent’s status changes mid-year.
Temporary Nature of the 2018 Reforms
It’s important to remember that these enhancements to the child tax credit and the new $500 credit for other dependents are not permanent. Under the current legislation, they are set to expire at the end of tax year 2025. At that point, the child tax credit would revert to the previous $1,000 amount, and the credit for other dependents could be eliminated unless Congress acts to extend or revise the rules.
This built-in expiration date has implications for long-term financial planning. Households relying on these credits for tax relief should be prepared for potential changes in future years, especially after 2025.
Planning for Dependency Transitions
Dependents do not remain in the same category forever. Children grow up, attend college, begin working, or become financially independent. Planning ahead for these transitions is key to managing expectations around tax credits.
For instance, if your child turns 17 in the middle of the tax year, they will not qualify for the full child tax credit on that year’s return. However, they may still qualify for the $500 credit for other dependents, provided other conditions are met.
As dependents age out of eligibility or leave the household, the taxpayer must reassess each year which credits are available. Regularly reviewing dependent status helps prevent errors and ensures you claim every credit you’re entitled to.
Exploring the Long-Term Impact of the 2018 Child Tax Credit Reforms
The 2018 tax reform package brought about significant changes to the Child Tax Credit (CTC) that aimed to provide more relief to American families. While the immediate effects were widely discussed during the initial years of implementation, the long-term implications are now beginning to emerge as we approach the sunset of several provisions at the end of 2025. A comprehensive look at how these changes have affected different groups over time, the broader economic implications, potential future modifications, and how families can continue to plan around these benefits.
Broader Access for Middle-Income Families
One of the most significant effects of the 2018 changes was the dramatic increase in the income thresholds for credit eligibility. Before 2018, the credit phased out for single taxpayers earning more than $75,000 and for joint filers earning above $110,000. The tax reform law raised these limits substantially to $200,000 and $400,000, respectively.
This broadened access allowed many middle-income and upper-middle-income families who were previously disqualified to now take full advantage of the credit. As a result, families with dual incomes or those living in higher-cost regions have been able to retain more of their income during tax season. The economic relief for this demographic has had ripple effects, such as increased spending power and more opportunities for savings or investment.
Boost to Low-Income Households
On the other end of the economic spectrum, the expansion of the refundable portion of the credit has been a lifeline for many low-income families. Making up to $1,400 of the $2,000 credit refundable meant that even families with no federal tax liability could still receive financial support through their annual refund.
The threshold for eligibility to receive this refundable portion was also lowered to $2,500 in earned income, making it easier for households with minimal employment income to benefit. This change has supported families in poverty or those working part-time, offering a more inclusive safety net for those raising children under financial stress.
Encouraging Workforce Participation
By tying part of the refundable credit to a minimum earnings requirement, the policy indirectly incentivizes work. This structure aligns with other income-based support programs that aim to reward earned income. In families with one stay-at-home parent or limited work hours, the refundable credit became an added motivation for at least some income generation, even if part-time.
This relationship between the refundable portion and earned income helps reinforce employment, although it also leaves out families without any earned income due to disability, caregiving responsibilities, or unemployment. Still, the overall result has been a moderate increase in workforce participation among lower-income families, particularly those seeking just enough work to qualify for the refund.
Regional Impacts and Cost of Living
The increased income thresholds and expanded eligibility have had differing impacts based on geography. Families in high-cost urban areas such as New York, San Francisco, and Washington, D.C., benefited more substantially from the expanded thresholds. In these regions, housing, childcare, and general living costs are significantly higher than the national average.
Before 2018, many families in these areas had incomes that disqualified them from the credit, despite facing substantial expenses. The updated income limits better reflected real economic conditions, allowing a more equitable distribution of benefits nationwide.
Influence on Family Financial Planning
Families who plan financially with the Child Tax Credit in mind have been able to make more strategic decisions since 2018. With an increased and partially refundable credit amount, many households incorporated the refund into their budgeting process. For some, it meant saving toward education or homeownership, while others used the refund to pay down debt or cover essential costs like health care and groceries.
Knowing that up to $2,000 per child could be expected each tax season gave families a more reliable source of income, reducing financial unpredictability. However, as the sunset date for the expanded credit approaches, financial planners and families alike are reconsidering long-term strategies.
The Temporary Nature of the Provisions
The most pressing issue with the 2018 changes is their impermanence. Without congressional action, many of the favorable provisions, including the doubled credit amount, higher income thresholds, and refundable portion, will expire after December 31, 2025.
If that happens, the credit will revert to the pre-2018 structure, with lower thresholds, reduced credit amounts, and minimal refundability. This would result in higher tax liabilities or smaller refunds for millions of families unless a new legislative package is introduced to extend or permanently adopt the existing provisions.
Projected Expiration Consequences
The expiration of the enhanced credit could have widespread implications:
- Lower Refunds: Families who currently rely on a large refund, especially those with multiple children, may see a sharp decline in their tax returns.
- Reduced Eligibility: Higher-income families that benefited from the raised thresholds may no longer qualify for the credit.
- Greater Tax Complexity: Transitioning between credit rules could create confusion and increase the need for professional tax assistance.
- Disruption in Financial Planning: Families may need to revise budgets, reevaluate savings goals, or seek alternative support if the enhanced credit disappears.
Comparison to Other Tax Credit Changes
The Child Tax Credit is just one part of a larger ecosystem of family-related tax benefits. For instance, the Earned Income Tax Credit (EITC) and the Child and Dependent Care Credit also saw modifications around the same time. Comparing these credits helps highlight the broader shift in tax policy toward supporting families with children, though each credit targets slightly different groups.
The EITC primarily helps low-income working families, while the Child and Dependent Care Credit focuses on child care costs. The CTC stands out by providing support that is not conditional on specific types of expenses. It recognizes the general financial demands of raising children and delivers support regardless of how those funds are spent.
Monitoring Legislative Proposals
Lawmakers across party lines have proposed different paths for the future of the Child Tax Credit. Some advocate for making the 2018 changes permanent, citing their success in reducing child poverty and supporting working families. Others suggest adjusting the refundability rules or tying the credit more tightly to workforce participation.
Several proposals also call for increasing the credit beyond $2,000 or expanding the refundable portion to the full credit value. There is also discussion about making the credit available monthly, rather than as a lump sum during tax season. These ideas gained traction following the temporary monthly payments offered under pandemic-era relief programs. Families and tax professionals will need to stay informed about the outcome of these legislative debates as 2025 approaches.
Filing Requirements and Verification Standards
The 2018 tax reform introduced additional verification standards to reduce fraudulent claims. One key requirement is that each qualifying child must have a valid Social Security number issued by the Social Security Administration. Taxpayers cannot claim the CTC using an Individual Taxpayer Identification Number (ITIN) for a child.
This requirement eliminated eligibility for certain immigrant families, even if their children are U.S. citizens. It also created a clear distinction between the Child Tax Credit and the new $500 Credit for Other Dependents, which does not require the dependent to have a Social Security number but does not offer refundability.
Taxpayers must also ensure that each child meets residency requirements, is properly claimed as a dependent, and satisfies age and relationship rules. Documentation errors or inconsistencies in Social Security numbers often result in the disallowance of the credit, which can delay refunds or trigger audits.
Tax Software and Compliance Tools
Given the various eligibility rules, income thresholds, and refundability factors, accurate calculations are critical. Families use a range of tools to determine their potential credit amounts and ensure full compliance.
Tax preparation software platforms have been updated to reflect the expanded credit structure, automatically applying the correct thresholds based on filing status and income. However, users still need to ensure their personal data and dependent information are entered correctly.
For those with more complex family situations—such as divorced parents sharing custody or taxpayers supporting dependents outside the nuclear family—manual review or professional consultation is often advisable. This helps avoid errors that could lead to audit triggers or missed credits.
Equity and Social Policy Considerations
From a policy perspective, the 2018 changes to the Child Tax Credit reflect a broader interest in supporting child welfare and reducing family poverty. Numerous studies and advocacy groups point to the CTC’s role in lifting millions of children above the poverty line, especially when combined with other assistance programs.
Yet, critics argue that the credit still leaves out some of the most vulnerable populations, including very low-income families with no earned income or those excluded due to immigration status. Ongoing discussions about future enhancements are likely to focus on inclusivity and how the credit can be structured to maximize impact across diverse household types.
Preparing for Uncertainty
As the current rules are set to expire after 2025, taxpayers must plan for multiple scenarios. Financial advisors often recommend conservative planning that anticipates lower refunds in the event the enhanced credit is not renewed.
Families should consider increasing withholdings, building emergency savings, and reassessing their eligibility annually as income levels and family dynamics change. For example, as children age out of eligibility, the availability of other credits—like those for college tuition or care of elderly dependents—may become more relevant.
Conclusion
The changes introduced by the 2018 Tax Cuts and Jobs Act reshaped how families benefit from the Child Tax Credit. By doubling the credit amount, introducing a partially refundable portion, and significantly raising income phaseout thresholds, the law broadened access and provided greater relief for both middle-income and low-income families. These updates not only allowed more households to qualify but also helped those who previously had little or no tax liability benefit from the credit through refunds.
Understanding the distinction between the Child Tax Credit and the Credit for Other Dependents is essential, especially as family structures become more diverse. Whether supporting young children, college-age dependents, or elderly family members, these credits can offer meaningful financial support.
While the current rules offer expanded benefits, they are not permanent. The enhanced provisions are scheduled to sunset at the end of 2025 unless new legislation is passed. This makes it even more important for families to stay informed and plan accordingly to take full advantage of available credits while they last.
As tax laws continue to evolve, families should regularly review their eligibility, use reliable resources, and consider seeking professional assistance to optimize their tax outcomes. Leveraging these credits wisely can ease financial burdens and support long-term financial stability.