I recently saw a question posted on a Facebook expat group: “So I want to move to Mexico next year but I want to claim my six children”. That made me think of the new and improved “child credit” for 2018. When I say 2018 it means the tax year whose return is due in 2019.
The new tax law made very significant changes the tax benefit for dependents. Until the 2017 tax year, one would get a personal exemption amount, a spousal exemption, and exemptions of equal value for each dependent. You would also be entitled to either a standard deduction or itemized deductions. The exemptions (and deductions) would be subtracted from your adjusted gross income to get net income, from which you would compute tax from the table.
From 2018 all personal exemptions disappeared. Whoosh. They went away. People were told that a new “double sized” standard deduction would give one a larger tax benefit. So you get a (larger) standard deduction or an itemized one as explained above.
Mr. “Six Children” used to have six exemptions that disappeared, right? Yes. But Congress came up with an ‘expanded’ Child Tax Credit. They take away, give you something else back, and make it look like you are getting a good deal. A tax credit is like a payment coupon. A $1 credit takes $1 off your actual tax bill.
Perverse 101: You now go into the tax table with a larger number.
The CTC can now be up to $2000 (depends on income) and may be partially refundable (you could get a check for unused credit). Exemptions went away, but the definition for dependents remains. To get the credits you need to meet the definition for dependents. The CTC is for more than just “children”. The CTC for “non children” is smaller in amount, $500.
A dependent must now be a citizen, or lawful US resident, with a social security number. “Dependent” also used to include nonresident aliens that resided in Mexico and Canada that met other tests, like non-citizen parents. No longer. Those exemptions were taken away and replaced with a ‘nothing’ credit. Some ‘win’.
As to our Facebook poster, who wanted to claim his six children: He would lose the CTC for not having lived with them in the same abode for at least half the year.
The tax law changed in significant ways, and some may affect you too!
Orlando Gotay is a California licensed tax attorney (with a Master of Laws in Taxation) admitted to practice before the IRS, the U.S. Tax Court and other taxing agencies. His love of things Mexican has led him to devote part of his practice to federal and state tax matters of U.S. expats in Mexico. He can be reached at firstname.lastname@example.org or Facebook: GotayTaxLawyer. This is just a most general outline. It is informational only and not meant as legal advice.