Clinton Vs. Trump on Child Tax Credits: Top Issue for Gen X Parents

The two main candidates for president of the U.S. – Democratic nominee Hillary Clinton, the former Secretary of State, and Republican challenger billionaire Donald Trump – are chasing after the votes of the younger generation. Each one wants to improve the tax benefits available to parents on the tax returns, but in different ways.

Clinton kicked off another news cycle late in her campaign by proposing an expansion of the child tax credit. She would double the maximum credit from $1,000 to $2,000 for kids under age age 5. In addition, Clinton would increase the amounts that low-income families could receive in tax refunds. Under her plan, the credit would be available even if you don’t have any tax liability.

Earlier in the year, Trump announced plans to overhaul the dependent care credit, commonly known as the “child care credit,” and effectively replace it with a tax deduction, among other aspects. The deduction could be claimed for up to four children by a single filer earning up to $250,000 and by joint filers with income under $500,000. Trump would also offer rebates for child care expenses to certain low-income families. Finally, the plan includes a provision for tax-favored Dependent Care Savings Accounts, which would operate much like the flexible spending accounts for child care expenses currently offered by employers.

It’s not surprising that both candidates would pander to this audience. Parents may benefit from the current credits, but there’s certainly plenty of room for improvement. Here’s a quick overview.

Child tax credit: This credit is intended to offset some of the costs of raising children under the age of 17. The maximum credit of $1,000 per qualified child is reduced for single filers with a modified adjusted gross income (MAGI) of $75,000 and an MAGI of $110,000 of MAGI for joint filers.

Furthermore, the child tax credit is at least partially refundable if you have earned income of more than $3,000. This refundable portion of the credit will expire at the beginning of 2017 for tax rates of 15% and higher. An additional tax credit may be available if the child tax credit is greater than the total amount of income tax you owe, as long as you had an earned income of at least $3,000.

Child care credit: Generally, this credit can be claimed for qualified child care expenses of kids under age 13. It is equal to 35 percent of the qualified expenses for taxpayers with an adjusted gross income (AGI) of $15,000 or less. This amount is reduced by 1 percent for each $2,000 that AGI increases, hitting a floor of 20 percent for an AGI of more than $43,000. Thus, the effective credit for many of your clients is 20 percent.

The credit is only available for the first $3,000 of qualified expenses for one child or $6,000 for two or more children. Therefore, the maximum credit for low-income filers is $1,050 (35% of $3,000) and (35% of $6,000), respectively. If a client’s AGI exceeds $43,000, the maximum credit he or she can claim is either $600 or $1,200.

It remains to be seen if the incoming Congress will support any of the latest tax proposals relating to children. But you can expect that candidates will continue to push their agendas as the election date nears.