Child Tax Credit Rules Explained 2018 (How the Child Tax Care Credit Works) Very Detailed!


welcome back to money and live TV my name is Mike the CPA you all know my sidekick chipper in today's video we are gonna be discussing a very important tax topic and that topic is the child tax credit we're gonna be covering the child tax credit rules for 2017 so you guys have a better understanding of how it works and we're gonna be looking at some of the changes to this credit for 2018 and at the end of this video we're gonna cover a couple key areas that I think you guys should really know about when you're trying to get this credit and before we dive right into this just real quick if you're new here I also want to say welcome if you're somebody who's looking to learn more about taxes more about investing more about finances then I would highly consider subscribing to our channel and you could do that by hitting a red subscribe button down below and of course guys if you find this video helpful please hit the like button to let me know you liked it alright let's go ahead and get started with this when it comes to complexity the child tax your credit can actually be quite complex it's no child to find all the instructions that go with this credit all the forms and all the worksheets I literally had this import chipper around the world and back!!! guys just so you know if something I say in today's video does not make sense or you're unsure of something hey don't worry feel free to drop that question or comment down in that comment section down below and I'll be happy to get back to you let's start with why this credit might be important for you tonight to know about the child task her credit will give you up to a $1000 credit per child so for each qualifying you child you have that you can get the credit for it's gonna cut a thousand dollars off your tax bill and what's great about credits is that they reduce your tax liability dollar for dollars so for example let's say your total tax for the year on your 1040 is let's say it's five thousand dollars well if you get a thousand dollar credit it's gonna take immediately a thousand dollars off that tax liability so it's really nice now now I bet you're wondering is the credit refundable if some credits are refundable and some are not this one is generally not refundable however I will say that if you qualify for the additional child tax or credit you might be able to get a portion of this credit refunded to you even if you owe no tax but most for most people even if you can't get it refunded it's still very beneficial because it's gonna like I said they can reduce your tax liability dollar-for-dollar and potentially all the way down to zero if you're able to qualify for this credit before we continue I just want to take a moment real quick to let you know that I've put together a word document for you and you can download it completely free in the description section of this video so just look right below the video open that description section you're gonna find a downloadable link to this word document I've spent hours and I mean literally hours guys putting this together for you and not it because it helps me and it will help you as well and so there's six pages worth of information that is gonna give you some step-by-step guidelines of things to know about the child tax credit and where to start when it comes to figuring out if you qualify for it or not after a lot of research on this topic there's three primary tests that you need to really think about when determining if you're gonna be eligible for this credit or not the first test we need to look at is the adjusted gross income test we need to know at what income level does our credit for this child tax or credit start to phase out if you file your tax return married filing joint for 2017 that income threshold is at a hundred ten thousand if you file single or head of household for example your threshold would be at seventy-five thousand and then if you filed marilene filing separate the threshold is at fifty-five thousand in the word document I've included in the description section of this video I give some examples of how the income phase-out affects this credit but real quickly just so you guys know the way it works and let's pretend that we're somebody who's married filing joint and let's pretend your income is right at that beginning threshold amount of one hundred ten thousand we know that the credit for 2017 we know you can take $1,000 credit per child so the way this income phase-out works is for every $1,000 you make above this amount if you're finally married filing joint in this case your credit gets reduced by $50 so if you make a couple makes one hundred eleven thousand dollars then their maximum credit is gonna be reduced to nine hundred fifty dollars if they make a hundred and twelve thousand dollars then their maximum credit is gonna be reduced to nine hundred dollars so keeps going down by fifty dollar increments every time your income goes up a thousand dollars and that's basically how that works when it comes to the phase-out okay now now let's go to test number two law so let's say your income is in the right range let's say your income is low enough to say okay my income my credits not going to be phased out now the next step is to say okay what are the qualifying child tests the chart in order to qualify for the child tax credit your child has to be under under the age of 17 if they're not you're not gonna be able to get this credit in terms of who would count as a qualifying child if you're obviously your son or daughter right this is somebody like your brother your sister it can be a stepbrother stepsister you can even be a half-brother it could be a foster child and of course adopted children count as well for this because they're considered your children but it can also be somebody who's a descendant so if your let's say you're a grandparent well it can be somebody like your your gran your grandchild or you know grandson or granddaughter you could even be like a niece or nephew so those are examples of some children who could qualify for this child tax credit the next thing you and I need to ask ourselves did did this child the one we're trying to claim this credit on that they live with us for more than half the year it's very important that we know that now if they did not there are some exceptions so if there's a special custody arrangement between you and your ex spouse or from a d4 if they're coming from divorced parents there are exceptions to that so you might still be able to count them as living with you for more than half the year another example or another exception I should say is if they are going to school or maybe they're away at school so maybe that's why they're not in your household so those would not disqualify you from them living with you for more than half the year so make sure to check out the publication 972 I've included a link to that in this description section below this video but all the links that I'm in all the instructions and whatnot are gonna be found in the sword document there's hyperlinks directly to these documents that can help you answer those questions in detail ok that was number four on this document I put together now number five can you claim them as a dependent on your tax return that's extremely important so if you cannot claim them as a dependent you're not gonna be able to get this child tax credit number six the child does not file a joint return for the year or files that only to claim your refund of withheld income tax or estimates paid so this is for somebody who maybe has a job or maybe they've started to work really early in their life so as long as they're not filing a joint return you can still count them towards this child tax or credit finally ladies and gentlemen we've made it to number seven of the qualifying child test rules which is was the child you're trying to claim the credit on were they a US citizen are they a us

national are they a us resident alien so if you want more information on that I have information in this document that I'm gonna provide you so just look there and there's a publication refers you to for that to find out more that's publication 519 so so really be looking at that if the child you're trying to claim is not a US citizen one last thing to mention on this real quick guys for each qualifying child you must either check the box on form 1040 or Form 1040a line 6c column four or form 1040 NR line 7c column four so make sure to when you're looking at that tax form make sure that box is checked whether you're doing this on paper or using software such as TurboTax or something like that and make sure that that box is checked because that's gonna indicate to the IRS that it that's a qualifying child and that they're going to be able to potentially be claimed or you're gonna be able to potentially claim the qualifying child taxpayer credit unfortunately in my professional opinion the IRS has made this credit much more complicated than it needs to be and it leaves us scrambling to different documents trying to figure out what form or worksheet need to fill out so for step number three that I've listed in this Word document you we're gonna now determine what worksheet you need to use in order to calculate your child tax credit amount so there are actually two primary child tax credit worksheets now what you guys need to know is you only need to fill out one of them you just need to know which one and where to go so let's break this down there's one in the 1040 instructions so there's if you file a Form 1040 a form 1040 a or a form 1040 and are there's a child tax Care Credit worksheet in each one of those instructions of each kind of those different tax forms the other place the child tax credit form is found is in IRS Publication 972 now you don't have to worry about searching all this stuff guys because I've included it as a link on the last page of this word document all of my links are shown right here it'll take you right to those instructions or to the publication depending on where you're trying to go let's start with the publication because that one's not as intuitive as the others all right so we're about to talk about the worksheet in the publication 972 and listen to what I'm about to read off to you and if this relates to you to your situation then you're gonna need to use the worksheet in the publication 972 if any of these apply to you so here we go so you are claiming the adoption credit mortgage interest credit District of Columbia first-time homebuyer credit or residential energy-efficient property credit B you are excluding income from Puerto Rico or C you are filing form two five five five two five five easy or 5/4 form five four six three oh my gosh that's a mouthful now if any of those things apply to you think you're gonna have to use the worksheet in publication 972 if none of those apply to you then you're gonna use the child tax credit worksheet that's found in the instructions so for example guys if you have if you normally file a Form 1040 for your personal income taxes and you're trying to claim this child tax credit then you're gonna go to the 1040 instructions it's a PDF document and you're gonna open it up and because I've looked at this so much now I know that if you go straight to page 48 you're gonna find a child tax Care Credit worksheet and that's the form I mean that's the worksheet that you're gonna use to claim the credit if you guys have any questions on those just let me know but that's – how to determine which child tasks Care Credit worksheet to use now remember you only have to use one of them you just need to figure out which one applies to your tax situation now it's the fourth and final point so we've looked at our income limitations we looked at the qualifying child tax credit rules we've determined which worksheet to use and now the fourth step is to read the worksheet line by line by line which I'm showing you on screen here this is the child tax credit worksheet from the 1040 instructions so this is just one example now if you have software which I highly recommend you prepare your taxes with software it's gonna save you a ton of time and it makes everything so much simpler but my goal with this video is to help you understand how the child tax credit works but it's simple math guys just read it line by line and it will walk you right through the calculation then that number once you in this example using the 1040 instructions the worksheet found within the 1040 instructions that number is reported from the worksheet on to line 52 of form 1040 page 2 and I've shown all this stuff on screen because I'm a visual person visuals are how I learn so that's why I'm showing you visuals on-screen so hopefully that helps hopefully that makes more sense of this but let me know if you guys have questions on that now let's talk about some of the changes that are happening to the child tasks or credit in 2018 and there are some big changes now the rules we just went over I probably gave you guys more information than you need but if you understand the rules that the rules for 2018 are almost identical so the same rules are gonna apply but the amounts for the credit are changing now for 2000 the child Tasker credit is $1,000 per child right that's what we mentioned a little bit earlier but for 2018 they're gonna bump up that credit to $2,000 per child which is a nice increase and it's really great because since personal exemption deductions are gonna be gone this credit is gonna help offset that now your child for 2018 the qualifying child still has those rules still apply and they still need to be under 17 years of age for 2018 the refundable portion of the credit is now $1,400 which is really nice but like I said earlier in the video if you remember me saying for most people they're not going to be able to get a refund from this credit but for those who are gonna be able to qualify for the additional child tax or credit you might be able to get a refund even if you own no tax at all up to $1400 so make sure to let you know look into that and check it out now if you guys want me to do a video on the additional child tax Care Credit which is actually tax form I think it's form 8812 then I can do a video on that just let me know in the comment section down below there's a few other child tax credit changes for 2018 but the last one I really want to point out to you guys which is it's really exciting and very I'm very happy they're doing this is that they're raising the phase-out limitations for the credit to a much higher income level so if you remember me saying for a single individual or head of household remember I said it was like seventy five thousand was where the phase-out begins now they're upping it to two hundred thousand dollars and if your file married filing joint the phase-out doesn't begin until you're at the four hundred thousand dollar income brain which means starting at 18 2018 if this credit is gonna become extremely helpful for a lot of people and that's a huge part of the reason I'm making this video guys is because so many more people may be able to qualify for this credit than in the past a few things I wanted to mention before we wrap up this video if you claim this credit on your tax return and you base on your tax situation you still end up getting a refund overall when you file your taxes your refund is likely gonna be delayed and it's gonna be the late anywhere from February 15th all the way to the end of February and really the reason that is guys is because there is so much and I mean so much fraud around this credit there are so many people trying to claim people that they don't even have and that's what's unfortunate so sadly the rest of us have to wait for a refund because the IRS has to look very carefully at at these peoples returns who are claiming this credit to make sure what they are claiming is truly legitimate the next thing I want to talk to you guys about is that there is a chance that you may not be able to claim this credit at all whether it's a child tax or credit or the initial child tax credit if you're caught trying to claim this credit with without the proper information if you did not calculate things correctly the IRS is really looking strongly at this guy's SoDo not mess around with this only only trying to claim this credit if you truly qualify for it because what they'll do is if they see that you've miscalculated something or that whether intentionally or not intentionally they might disallow you to take this credit for the next two years even if you would qualify so when you're going through the worksheet and filling out the forms for this credit whether on paper or using computer software such as TurboTax make sure you're doing it correctly make really read the form really read it line by line to make sure your numbers correct now if they find if the IRS determines that you're trying to commit fraud with this credit well they can disallow you this credit for over ten years so you really have to take this seriously guys do not try to pull one over on the IRS they are really and I mean really looking at this okay the next thing is if you have children who have an ITIN number and not a social security number there's special rules around that so make sure to look in the word document and what I've done is I've pulled information part of this word document I typed it myself and other parts of it I've included information from websites and information directly from the publication just so you guys know and all of my links like I said are in the back page of this document so if you have a child with an ITIN number look at that because there's special rules if your child does not have a social security number and you're trying to claim this credit NIC's there may be an effect on your welfare benefits if you're somebody who receives welfare so make sure to download this word document and check that out and last but not least guys I've included some examples of how the income limitation works on within this word document and but we've already covered it a little bit here on the white board so I'm not gonna go further in detail about it but I just want to let you know I've included that in this packet so you really can get a lot of value I think coming just by downloading this word document I put together make sure I make sure to check it out guys cuz it like I said it took me a few hours to sort this information out and put this together in this packet for you so I hope you find it helpful after watching this video if you have a question I did not answer are if there's something that you're unsure about or maybe I could have explains it in a different way do not hesitate to ask guys it's fine just drop a comment in the comment section down below and I'll be sure to get back to you now right now as many of you know I am a CPA in real life which means I've been doing taxes now for over seven years roughly and so my schedules a little bit busy but give me time that I will eventually get back to you with your question if you guys liked the video make sure to let me know by hitting that like button down below be sure to subscribe if you have not already because every single week on this channel we produce new videos to help you with your personal finances your investments taxes and so much more and guys feel free to share this information with a friend especially somebody who has children who might be able to qualify for the tax credit I think it would really benefit them and it's more important than ever that people know about this credit especially starting in 2018 alright guys it has been a true pleasure and honor hanging out with you here once again here on YouTube guys and it's much fun interacting with all of you I hope you found this information helpful hope you learned a few things today I definitely learned a lot in the process of putting together this video and the information and truly the golden part of this video is truly the downloadable link to that Word document that I've put together for you guys and it has all the links to all the different documents of two publications to the 1040 instructions etc that you're gonna need including the form for the initial child haxor credit so be sure to check that out guys I love you I hope you all have a fantastic week it's springtime the weather is beautiful where I live here in California and I hope wherever you live the weather is nice too and I hope you're able to get outside have some fun and let's get rid of this winter weather and enjoy some sunshine love you guys have a great week bye

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