Is Your Child Turning 17 in 2024? Beware This Sneaky Tax Increase

They say the best things in life are free, but raising children isn't one of them. It can cost $300,000 to raise a child from birth to age 17. From diapers and onesies to braces and cars, the costs of growing up in America just keep getting higher.

Good news: The IRS gives parents a nice tax break each year called the Child Tax Credit. For most families, this results in a $2,000-per-child reduction in taxes. A family with two children would get $4,000 subtracted from their tax bill when they file their tax return. The Child Tax Credit takes some of the financial stress out of raising kids. It can turn a small tax bill into a big tax refund, giving you a fun windfall at tax time.

But there's a downside to the Child Tax Credit: just like the joys of childrearing, it doesn't last forever. Children grow up and leave the nest, and the Child Tax Credit goes away with them. And if you're not careful, the end of the Child Tax Credit could hit you with a surprise tax bill.

Let's take a closer look at what age your child no longer qualifies for the Child Tax Credit, and how this could affect your taxes -- and your take-home pay -- in 2024.

At what age do children "lose" the Child Tax Credit?

According to IRS rules, to get the Child Tax Credit, your child must be under the age of 17 by the end of the tax year. So if your child is turning 16 in 2024, you can breathe a sigh of relief -- you can still get the Child Tax Credit for your 2024 taxes. But if your child is turning 17 this year? Watch out -- your tax bill is about to go up.

Losing the Child Tax Credit at age 17 might be surprising for many families. After all, your 17-year-old child is likely still living at home and attending school; they're still legally a child and they can't support themselves financially. And the costs of raising a 17-year-old are not any cheaper than any other age; if anything, teenagers are more expensive! Teenagers need a lot of expensive stuff, like braces, summer programs, fancy electronics, and clothes that they're constantly outgrowing -- they have a swanky lifestyle!

Unfortunately, these are the IRS rules, and you never want to defy the IRS -- unless you want to get audited. So if your child is turning 17 in 2024, be prepared for a bigger tax bill.

Child Tax Credit limits

Along with the 17-year-old age cutoff, there are also some other rules for which children qualify for the Child Tax Credit. The child must:

• Be correctly claimed as your dependent on your tax return
• Have lived with you for at least half the year
• Be your son/daughter, stepchild, foster child, or other qualifying relatives who depend on you financially
• Be a U.S. citizen, U.S. national, or resident alien

If you are divorced and you and your ex-spouse share custody of children, this could cause complications in deciding who gets to claim the Child Tax Credit -- talk to a professional tax advisor or attorney if necessary. There are also a few rules that affect children who earn enough income to provide more than half of their annual financial support, or who are married.

The Child Tax Credit is also limited by income. If you're married filing jointly, your modified adjusted gross income (AGI) must be $400,000 or less to get the Child Tax Credit. For all other filers (single, head of household, etc.) your modified AGI must be less than $200,000. If you're a high earner, it's worth checking to see if your income qualifies for the Child Tax Credit.

What to do if you're losing the Child Tax Credit in 2024

This happened to my friend last year: his daughter turned 17, and he didn't realize that he wasn't going to get the Child Tax Credit anymore. So when he filed taxes, his tax bill was $2,000 higher than he'd expected. Don't let this happen to you! If your child is turning 17 in 2024, here's how you can prepare.

Change your W-4 tax withholdings at work

If your child is turning 17 this year, ask about filing a new Form W-4 so you can have more tax withheld from your paycheck. This way you can avoid an unpleasantly high tax bill, and avoid getting hit with an IRS underpayment penalty. But the downside is that your take-home pay will be a bit smaller than it was before. For example, if you get paid every two weeks (26 paychecks per year), and you need to withhold an extra $2,000 for the Child Tax Credit that you're no longer getting, each paycheck's after-tax net pay might be about $77 lower.

Save more money for taxes

Along with changing your W-4 tax withholding allowances, you might want to save some extra cash. Set up an automatic transfer on every payday to move money from checking to savings. If you save $166.67 per month for 12 months, you would have $2,000 to cover that lost Child Tax Credit. Get a high-yield savings account to help your money grow faster before tax season.

Increase your tax deductions

Make extra contributions to your 401(k) or a traditional IRA, or put extra money into a health savings account (HSA) if you have one. These simple moves can reduce your taxable income and cut your tax bill.

Bottom line: Watching your child grow up can be poignant, especially when they reach age 17 and you lose that sweet Child Tax Credit money. Plan ahead to avoid a surprise tax bill.