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New Family Tax Credit

Under Tax Reform, for 2018-2025 years there is no dependency exemption for dependents, including qualifying relatives. However, you may be eligible for a $2,000 credit for each qualifying child and a $500 credit (called the “credit for other dependents” or "family credit") for each qualifying non-child dependent, including qualifying relatives.

THIS MEANS THAT…you may be able to claim this credit if you have children age 17 or over (since only children under 17 qualify for the larger child credit), including college students, or or other older relatives in your household.

One of the conditions for being a qualifying relative is that the person's gross income for the year can't be more than the exemption amount. The exemption amount has been reduced to zero because the dependency exemption has been eliminated. Reading the new law, that would mean any qualifying relative with any income would not be eligible for the family credit.

Fortunately, the IRS has clarified that the gross income limit for a qualifying relative for tax credit purposes (as well as for other purposes, such as head-of-household status), is determined by reference to what the exemption amount would have been if it hadn't been reduced to zero. Therefore, for the family tax credit the 2018 gross income limit is $4,150.

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Richard Pon CPA, CFP