The Tax Cuts and Jobs Act (TCJA) is the first major change to the American tax system in 30 years: Child Tax Credit? Dependency exemptions? Dependent Care Credit? Head of Household? 529 Plans? Kiddie Tax? What does this mean for families in the realm of Chicago divorce?
*Changes to the Child Tax Credit (CTC)
If you took advantage of the child tax credit in 2017, you were able to claim a $1,000 credit on your income tax return for each child under 17 who qualified. For 2018, that deduction has doubled to $2,000 per qualifying child.
The child tax credit was nonrefundable before the TCJA. Now, the refundable portion is equal to 15% of your earned income over $2,500, up to $1,400. To estimate how much of the refund you would receive, you can use the following equation: (Your salary – $2,500) x .15
In order for your child to qualify for the new credit, they must meet all of the requirements on the Child Tax Credit Test:
*A $500 Credit for Dependents Age 17-24
If your child does not qualify for the CTC because they are over 17, they may still be eligible for a $500 credit under the new TCJA. The credit also applies for dependents who are elderly or disabled.
*Changes to the personal exemption and standard deduction
If you filed your taxes in 2018, you should have received a personal exemption of $4,050 for yourself and each of your dependents. Your personal exemption was subtracted from your taxable income in addition to your standard or itemized deductions.
The Tax Cuts and Jobs Act has eliminated this exemption, but it has increased the standard deduction to $24,000 ($12,000 if you are a single filer). For families with few children, this could be good news. But if you have several children or your dependents are over age 17, this could mean that more of your income is taxable.
* Expanding the 529 savings plan for all grades
For many parents, saving money to send kids to college is a priority; if you have been saving money for higher education, you probably chose the most tax-advantaged plan available to you. If you went with a 529 savings account, there are new advantages under the TCJA. With the old tax laws, your 529 could only be used at eligible colleges and universities. Under the new TCJA, you can use your plan to cover up to $10,000 per year of qualifying expenses for any school and any grade from kindergarten through 12th as well. That includes public, private, and religious institutions.
* Changes to the kiddie tax
The kiddie tax applies to children under age 19 and college students under age 24 who have unearned income over $2,100. Unearned income can mean dividends, capital gains or interest on investments. Following the tax law changes, qualifying income will be taxed at the rate for trusts and estates on the return you file in 2019, which you can obtain from your accountant or tax professional.
Reach out to the Chicago Divorce Lawyers of WardFamilyLawChicago.com to get the legal advice and guidance you need.
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