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As taxpayers plan their 2026 taxes, there is good news in the form of an enhanced child-tax credit.
The legislation known as the One Big Beautiful Bill Act (OBBBA)), increased the credit amount and the refundable portion. Additionally, the new law enlarged the pool of taxpayers eligible for the credit by increasing the adjusted-gross-income (AGI) ranges
Under the OBBBA, a taxpayer's potential credit amount begins to phase out at $400,000 of modified AGI (MAGI) for joint filers and $200,000 for all others. Formerly, the credit began to phase out at $110,000 for joint filers, $55,000 for married separately, and $75,000 for all others.
The new law increases the credit from $2,000 to $2,200 per "qualifying child." Also, the qualifying child must meet the relationship, abode, and support tests while also being under age 17.
The relationship test requires the individual to be the taxpayer's (1) child or a descendent of the child, or (2) sibling or step-sibling or a descendent of the sibling or step-sibling.
The abode test requires that the individual have the same principal place of abode as the taxpayer for more than half the year.
The support test requires that the individual does not provide more than half of his or her support for the calendar tax year.
The big picture is that taxpayers with MAGIs below the threshold will be able to claim a $2,200 credit for each qualifying child. Of the $2,200 credit per qualifying child, up to $1,700 can be refundable. The refundable portion of the credit only applies when the taxpayer is unable to fully use the $2,000 nonrefundable credit to offset his or her tax liability.
In addition, the new law will continue to provide a $500 credit for each dependent living with the taxpayer who does not meet the definition of a qualifying child, such as parents, uncles and aunts, nieces and nephews.
In the past, taxpayers in the middle- to high-income brackets may have largely ignored the child tax credit. However, the OBBBA expanded the credit, both in terms of eligible taxpayers and eligible dependents.
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