Tax Man LLC

Tax Changes 2018 - Kids - Oy!


Before I get to any of the changes regarding kids, let me tell you what has NOT changed:

  • You still get child/dependent care for kids under 13
  • You still get earned income credit
  • You still get college tuition credits
  • You still get student loan interest

So what did you “lose” regarding your kids
(other than your sanity)?


One of the most controversial parts of the Trump Tax Cuts is the elimination of personal exemptions for taxpayers and any dependents.  


“Whaddya mean I can’t deduct my kids anymore????”


Stay tuned for the truth!
(if you think you can handle the truth)


This exemption was $4,050 per person in 2017 and was essentially a deduction since it lowered your taxable income.  If you were in a 10% bracket, it was worth $405 real dollars.  In a 22% bracket that’s $891.
 
For the taxpayer and/or spouse this loss is offset (plus some) by lower tax rates, so you generally come out ahead.

But what if you’ve got four kids and lose this $16,200 deduction?  There’s no way the lower tax rates can offset that much.  And you’re right.  


They made it up by increasing the child credit for kids under 17 and adding a modest credit for kids over 16 when there was none before.

But the old child credit available was $1,000 per child under age 17.  That has been doubled to $2,000 per child under 17.  Once they turn 17, the credit was $0, but is now allowed at $500.  That will usually exceed any loss of the exemption.  For lower income folks it’s a big savings, often enough to wipe out any tax for the year.

And if it does wipe out your tax bill in full, they’ll even refund up to $1,400 per child under 17.   Remember in an earlier article when I said you can’t got below zero.  


I LIED!! 
YES, YOU CAN PAY NEGATIVE TAX!!  


The government will actually pay you.  And since you owe no tax, you’ll actually have a negative tax rate.  So those fours kids can potentially get you all your money back PLUS up to $5,600.  Not to mention a possible Earned Income Credit and/or tuition credits giving even more.

I just tested it on one of my taxpayers with 4 kids and W-2 earnings of $64,000.  His tax bill went from $1,300 in 2017 to negative $600, a $1,900 bigger refund under the new law.    

Randall S. van Reken, EA, CFP, ATP