The Child Tax Credit has been helping lower and middle class families since 1997. It has been a great benefit for these families to help offset the cost of raising children. However, for upper middle class and upper class families this benefit hasn’t been available. But the Tax Cuts and Jobs Act (TCJA) of 2017 is changing that. Here’s why.
Under the new law, the Child Tax Credit – which is worth $2000 per child – is now available to single filers with a modified adjusted gross incomes (MAGI) of up to $200,000. Married taxpayers qualify for it with an MAGI of up to $400,000. That means many more taxpayers are now eligible to receive this beneficial credit.
So what about paying for college? As with any extra income, taxpayers have a choice. Just like you can go blow your tax refund each year, you could blow this extra money, as well. However, if you decide to hold onto this extra cash and store it away, it can help pay for college down the road.
When you put this money into a 529 College Savings Plan you are actually building up your child’s college savings account tax-free. In addition, when it’s time to withdraw the funds and use them, they also come out tax-free, as long as you use them for qualified education expenses. Therefore, this extra $2,000 from the child tax credit each year is a great way to start saving for your child’s long-term education plan.