Kara Sears
The tax law has undergone several changes in recent years, impacting how families with children file their taxes. One of the most significant changes was the removal of personal exemptions, which was replaced by a larger standard deduction. This change affects child support payments, as dependency exemptions impact net income. To claim a child as a dependent, parents must meet certain requirements, including the child's age, student status, and disability status. Additionally, the Child Tax Credit has increased, offering up to a $2,000 credit per qualifying child under 16, and $500 for other qualifying dependents. These changes aim to provide tax breaks for families with children, but it's important for parents to understand the specifics to maximize their tax benefits.
| Characteristics | Values |
|---|---|
| Definition of dependent | A person other than the taxpayer who entitles the taxpayer to claim a dependency exemption |
| Definition of qualifying child | A child must be the parent's biological, adopted, foster, or stepchild. The child must be under the age of 19, under the age of 24 and a full-time student, or any age if permanently and totally disabled |
| Qualifying child tests | The child must be the taxpayer's child, stepchild, foster child, sibling, half-sibling, stepsibling, or a descendant of any of them. The child must be under the age of 19 at the end of the year and younger than the taxpayer (or their spouse if filing jointly). The child must be a full-time student under the age of 24 at the end of the year and younger than the taxpayer (or their spouse if filing jointly) |
| Qualifying child tests (cont.) | The child must be any age if permanently and totally disabled. The child must have lived with the parent for more than half the year. The child cannot have provided more than half of their own support for the year. The child cannot be filing a joint tax return for that tax year |
| Qualifying child – Social Security Number | The child must have a Social Security Number that is valid for employment and is issued before the due date of the parent's tax return |
| Qualifying child – annual income | The parent's annual income should not be more than $200,000 ($400,000 if filing a joint return). Parents and guardians with higher incomes may be eligible to claim a partial credit |
| Child Tax Credit | The Child Tax Credit results in up to a $2,000 credit per qualifying child age 16 or younger. If you owe no tax, up to $1,700 of the Child Tax Credit may be refundable using the Additional Child Tax Credit for 2024. Children over age 16 aren't eligible for the Child Tax Credit |
| Credit for Other Dependents | Older children and other qualifying dependents may be eligible for a new tax credit of up to $500 called the Credit for Other Dependents |
| Dependency exemption loss | When a parent earns too much income, the dependency exemption begins to lose value, up to the entire amount. A parent earning in excess of $400,000 annually will likely receive no benefit to claiming a child on taxes |
| Personal exemptions | The new tax law removed personal exemptions, but increased the typical Standard Deduction amounts |
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What You'll Learn
Who qualifies as a dependent
The IRS defines a dependent as a qualifying child or a qualifying relative who relies on you for financial support. To qualify as a dependent, a child must meet specific tests. These include age, relationship, residency, support, and joint return.
Firstly, to be a qualifying child, the child must be under the age of 19, under the age of 24 and a full-time student, or any age if they are permanently and totally disabled. Secondly, the child must be related to the taxpayer claiming dependency. They can be the taxpayer's biological, adopted, foster, or stepchild, or a descendant of any of these. Thirdly, the child must have lived with the taxpayer for more than half of the year, although there are exceptions for temporary absences. Fourthly, the child cannot have provided more than half of their own support for the year. Finally, the child cannot be filing a joint tax return for that tax year, although there are exceptions to this rule.
In addition to the above, there are other requirements that must be met for someone to be claimed as a dependent. The dependent must be a US citizen, resident alien or national, or a resident of Canada or Mexico. They must not be claimed as a dependent on someone else's tax return, and they must have made less than the current year's threshold amount in gross income for the year.
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Qualifying for the Child Tax Credit
The Child Tax Credit is a benefit for parents and caregivers with dependent children. The credit amount varies depending on your income and filing status. Here are the requirements for qualifying for the Child Tax Credit:
Relationship
The child must be your biological, adopted, foster, or stepchild. They can also be your sibling, half-sibling, stepsibling, or a descendant of any of them, such as a grandchild, niece, or nephew.
Age
The child must be under a certain age, which varies depending on the specific tax credit. For the Child Tax Credit, the child must be under the age of 17 at the end of the tax year. For the Child and Dependent Care Credit, the child must be under the age of 13.
Residency
The child must have lived with you for more than half of the tax year.
Financial Support
You must have provided more than half of the child's financial support during the year. The child should not have provided more than half of their own support.
Income
Your income must be within certain limits to qualify for the full Child Tax Credit. For the 2024 tax year, the credit begins to phase out at $200,000 of modified adjusted gross income (MAGI) for individual filers and $400,000 for married couples filing jointly. If your income exceeds these thresholds, the credit amount is reduced by $50 for each $1,000 above the limit until it phases out completely.
Social Security Number
Both the taxpayer and the dependent child must have valid Social Security numbers that are valid for employment in the United States.
It's important to note that these requirements may change over time, and there may be additional considerations or exceptions not mentioned here. You can use the IRS Interactive Tax Assistant tool to determine if your child qualifies for the Child Tax Credit and consult a tax professional for personalized advice.
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How net income affects child support
Child support calculations are a balancing act of all the different financial factors that go into raising a child. While almost all types of income are considered when calculating child support, there are some exclusions. For instance, a parent's net income is used to determine child support, which means that the court does not take into account funds that are unavailable to the parent. Notably, in New Jersey, while social security disability is considered income for child support purposes, Supplemental Security Income (SSI) is not.
The court will look at the income a parent receives from all sources, including salaries, wages, tips, commissions, bonuses, profit sharing, deferred compensation, and severance pay. Additionally, the court will consider regular expenses incurred for the child's benefit, such as health insurance and education costs. The number of children supported and custody arrangements are also taken into account.
In the context of child support, a dependency exemption affects net income and, consequently, child support. The IRS sets the qualification rules for dependency exemptions, which include factors such as the child's age, living situation, and financial support. While claiming a child as a dependent can increase net income, it does not result in a “dollar for dollar” decrease in child support. Therefore, it is important to specifically determine the benefit or loss associated with claiming a dependent.
It is worth noting that when a parent's income exceeds a certain threshold, the dependency exemption may lose value. For example, a parent earning over $400,000 annually may receive no benefit from claiming a child on their taxes. In such cases, it may be advantageous for the higher-earning parent to agree for the other parent to claim the children as dependents.
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The impact of parents' income on exemptions
The Child Tax Credit provides a tax break for families with qualifying children. A qualifying child must be under 17 at the end of the tax year, be claimed as a dependent, and meet other criteria. Parents can claim the Child Tax Credit for each qualifying child with a valid Social Security number.
It is important to note that when a parent's income exceeds a certain threshold, the dependency exemption starts to lose value. For example, a parent earning over $400,000 annually may receive no benefit from claiming a child on their taxes. In such cases, the higher-earning parent should ensure that the other parent claims the children as dependents.
Additionally, the Child Tax Credit includes advance payments of up to 50% of the estimated credit that taxpayers can claim on their returns. This was observed in 2021, where taxpayers with qualifying children received advance child tax credit payments.
Overall, while the removal of personal exemptions has impacted parents' tax filings, the increase in the Child Tax Credit and the ability to claim partial credits provide some relief for parents with higher incomes.
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Exemptions for senior citizens
Senior citizens may be eligible for property tax exemptions, depending on the state in which they reside. In New York, senior citizens can apply for a property tax exemption, with the option of Form RP-467 for first-time applicants, Form RP-467-Rnw for renewal applicants, and Form RP-467-Wkst for those who did not need to file a federal income tax return. This exemption also applies to manufactured homes on leased land and life estates or trusts.
In Colorado, the senior property tax exemption is available to senior citizens and the surviving spouses of senior citizens. The state reimburses local governments for the loss in revenue. When the state budget allows, 50% of the first $200,000 of the actual value of the qualified applicant's primary residence is exempted. Applicants must meet the qualifications and have filed an application on time. The Long Form is for surviving spouses and applicants who qualify under the exceptions to the basic requirements.
Senior citizens in New York can also register for the STAR credit, which includes the Basic or Enhanced STAR credit amount. The Enhanced STAR credit is paid directly by the NYS Tax Department. The law governing the senior citizens exemption was amended in 2023, and further information can be found in the 2023-2024 Enacted State Budget.
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Frequently asked questions
A dependent exemption is the income you can exclude from taxable income for each of your dependents. Before 2018, you could exclude $5,050 for each dependent.
A dependent is a “qualifying child” or a “qualifying relative”. The child must be your biological, adopted, foster, or stepchild. They must be under the age of 19, under the age of 24 and a full-time student, or permanently and totally disabled. The child must have lived with you for more than half the year and cannot have provided more than half of their support for the year.
The new tax law removed personal exemptions but increased the standard deduction amounts. The standard deduction was made larger to offset the loss of exemptions.
The Child Tax Credit is a credit that offsets the tax you owe dollar for dollar. You can claim the Child Tax Credit for each qualifying child who has a valid Social Security number. In 2024, you may be able to claim up to a $2,000 credit per qualifying child age 16 or younger.
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