Question

Determine the amount of child tax credit in each of the following cases: Child Tax Credit Allowed a. A single parent with modified AGI of $214,800 and four child(ren). b. A single parent with modified AGI of $81,650 and one child(ren). c. A married couple filing a joint return, with modified AGI of $408,731 and three child(ren).

Answer 1

A) $1,260   (The credit phases out by $50 for each $1,000 of Modified Adjusted Gross Income over the threshold, as she is a single parent threshold for her is $200,000)

Calculation

• $214,800 – $200,000 = $14,800
• $14,800 ÷ $1,000 = 14.8
• $50 × 14.8 = $740 phaseout amount
• $2,000 – $500 = $1,260 child tax credit

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B) $2000 (Her income is below the threshold limit of $200,000, for filing as single. She can claim the full credit)

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C) $1563.5 (A married couple filing jointly has a threshold limit of $400,000,he credit phases out by $50 for each $1,000 of Modified Adjusted Gross Income)

Calculation

• $408,731 – $400,000 = $8,731
• $8,731 ÷ $1,000 = 8.731
• $50 × 8.73 = $436 phaseout amount
• $2,000 – $436 = $1,563.5 child tax credit

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Rule

The credit phases out by $50 for each $1,000 of Modified Adjusted Gross Income over the threshold.The beginning credit phaseout for the child tax credit increases to $200,000 ($400,000 for joint filers). The phaseout also applies to the new $500 credit for other dependents.

Under the Tax Cuts and Jobs Act (TCJA) the following new child tax credit rules went into effect in 2018 and apply to 2019 tax returns:

• The Child Tax Credit under tax reform is worth up to $2,000 per qualifying child. The age cut-off remains at 17 (the child must be under 17 at the end of the year for taxpayers to claim the credit).
• The refundable portion of the credit is limited to $1,400. This amount is subject to inflation adjustments but remains at $1,400 for 2019.
• The earned income threshold for the refundable credit is lowered to $2,500.
• The child must have a valid Social Security Number to qualify for the $2,000 Child Tax Credit.
• The beginning credit phaseout for the child tax credit increases to $200,000 ($400,000 for joint filers). The phaseout also applies to the new $500 credit for other dependents.