More Taxpayers Will Qualify For The Child Tax Credit

There is great news for parents in the middle to upper income tax brackets.  The new tax law dramatically increased the income phase-out threshold for claiming the child tax credit.  In 2017, parents were eligible for a $1,000 tax credit for each child under the age of 17 as long as their adjusted gross income (“AGI”) was below $75,000 for single filers and $110,000 for married couples filing a joint return.  If your AGI was above those amounts, the $1,000 credit was reduced by $50 for every $1,000 of income above those thresholds.    In other words, the child tax credit completely phased out for a single filer with an AGI greater than $95,000 and for a married couple with an AGI greater than $130,000. 

Note:  If you are not sure what the amount of your AGI is, it’s the bottom line on the first page of your tax return (Form 1040). 

New Phaseout Thresholds Beginning In 2018

Starting in 2018 and for years going forward, the new phaseout thresholds for the Child Tax Credit begin at the following AGI levels:

Single Filer: $200,000

Married Filing Joint: $400,000

If your AGI falls below these thresholds, you are eligible for the full Child Tax Credit.  For taxpayers with an AGI amount that exceeds these thresholds, the phaseout calculation is the same as 2017.  The credit is reduced by $50 for every $1,000 in income over the AGI threshold.

Wait......It Gets Better

Not only will more families now qualify for the child tax credit but the amount of the credit was doubled.  The new tax law increased the credit from $1,000 to $2,000 for each child under the age of 17.

In 2025, a married couple, with three children, with an AGI of $200,000, would have received nothing for the child tax credit.  Now, that same family will receive a $6,000 tax credit. That’s huge!! Remember,  “tax credits” are more valuable than “tax deductions”.  Tax credits reduce your tax liability dollar for dollar whereas tax deductions just reduce the amount of your income subject to taxation.

This information is for educational purposes only.  Please consult your accountant for personal tax advice.  

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

Tax Secret: Spousal IRAs

Spousal IRA’s are one of the top tax tricks used by financial planners to help married couples reduce their tax bill.  Here is how it works:

In most cases you need “earned income” to be eligible to make a contribution to an Individual Retirement Account (“IRA”).  The contribution limits for 2025 is the lesser of 100% of your AGI or $7,000 for individuals under the age of 50.  If you are age 50 or older, you are eligible for the $1,000 catch-up making your limit $8,000.

There is an exception for “Spousal IRAs,” and there are two cases where this strategy works very well.

Case 1:  One spouse works and the other spouse does not.  The employed spouse is currently maxing out their contributions to their employer-sponsored retirement plan, and they are looking for other ways to reduce their income tax liability.

If the AGI (adjusted gross income) for that couple is below $236,000 in 2025, the employed spouse can make a contribution to a Spousal Traditional IRA up to the $7,000/$8,000 limit even though their spouse had no “earned income”.    It should also be noted that a contribution can be made to either a Traditional IRA or Roth IRA but the contributions to the Roth IRA do not reduce the tax liability because they are made with after tax dollars.

Case 2:  One spouse is over the age of 70 ½ and still working (part-time or full-time) while the other spouse is retired.  IRA rules state that once you are age 70½ or older, you can no longer make contributions to a traditional IRA.  However, if you are age 70½ or older BUT your spouse is under the age of 70½, you still can make a pre-tax contribution to a traditional IRA for your spouse.

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.