Tax credits are a hot topic in today’s economic climate, especially as families grapple with rising costs of living, inflation, and shifting tax policies. One question that often comes up is whether the Credit for Other Dependents (ODC) phases out at higher incomes. The short answer is yes, but the details matter—especially for middle- and upper-income families trying to maximize their tax benefits.

Understanding the Credit for Other Dependents

The ODC is a non-refundable tax credit introduced under the Tax Cuts and Jobs Act (TCJA) of 2017. It provides up to $500 per qualifying dependent who doesn’t meet the criteria for the Child Tax Credit (CTC). This includes:

• Dependent parents or relatives
• Children aged 17 or older
• College students over 17
• Disabled dependents of any age

Unlike the CTC, which is partially refundable, the ODC is strictly non-refundable—meaning it can reduce your tax liability to zero but won’t result in a refund if the credit exceeds what you owe.

How the Phase-Out Works

The ODC begins to phase out at higher income levels, following a similar structure to other tax credits. Here’s how it breaks down:

Income Thresholds for Phase-Out

• Single filers & Heads of Household: The phase-out starts at $200,000 of Modified Adjusted Gross Income (MAGI).
• Married Filing Jointly: The phase-out begins at $400,000 of MAGI.

For every $1,000 (or fraction thereof) that your income exceeds these thresholds, the ODC is reduced by $50. This continues until the credit is completely phased out.

Example Scenario

Let’s say a married couple filing jointly has a MAGI of $420,000. Since they exceed the threshold by $20,000, their ODC would be reduced by:

• $20,000 ÷ $1,000 = 20 increments
• 20 × $50 = $1,000 reduction

If they originally qualified for a $1,000 ODC (for two dependents), their credit would drop to $0.

Why This Matters in Today’s Economy

With inflation hitting household budgets hard, every tax credit counts. However, the ODC phase-out disproportionately affects:

1. Middle-Class Families in High-Cost Areas

• In cities like New York, San Francisco, or Boston, a $200,000 income doesn’t stretch as far as it used to.
• Many families who once qualified for the ODC are now seeing it reduced or eliminated due to rising wages that push them over the threshold.

2. Families Supporting Elderly Parents

• With an aging population, more Americans are financially supporting parents or disabled relatives.
• Losing the ODC means fewer resources for caregiving expenses.

3. College Students & Young Adults

• Parents with kids in college (over 17) may lose this credit just as tuition costs soar.

Comparing ODC to Other Tax Credits

The ODC isn’t the only credit that phases out. Here’s how it stacks up:

| Tax Credit | Phase-Out Starts At (Single) | Phase-Out Starts At (Married) |
|-------------------------|----------------------------------|-----------------------------------|
| Child Tax Credit (CTC) | $200,000 | $400,000 |
| Earned Income Tax Credit (EITC) | Varies by filing status & dependents | Same |
| American Opportunity Credit (AOTC) | $80,000 | $160,000 |

Unlike the AOTC, which phases out much earlier, the ODC aligns with the CTC—but since it’s non-refundable, its impact is more limited.

Policy Debates & Future Changes

The ODC phase-out has sparked debates in Congress, especially as lawmakers consider:

Expanding the Credit

• Some proposals suggest raising the phase-out thresholds to adjust for inflation.
• Others advocate making the ODC refundable, like the CTC, to help lower-income families.

Economic Inequality Concerns

• Critics argue that tax credits should not favor high earners, while supporters say middle-class families need relief too.

Potential Legislative Changes

• The TCJA provisions expire in 2025, meaning Congress will revisit these credits soon.
• If lawmakers don’t act, the ODC could disappear entirely, leaving many families with even fewer tax benefits.

Strategies to Maximize the ODC

If you’re close to the phase-out threshold, consider:

Income Reduction Tactics

• Maximize retirement contributions (401(k), IRA) to lower MAGI.
• Harvest tax losses to offset capital gains.

Timing Dependent Claims

• If a dependent is about to turn 17, see if you can claim them under the CTC before they age out.

Consult a Tax Professional

• A CPA can help structure finances to preserve tax credits while staying compliant.

Final Thoughts

The Credit for Other Dependents is a valuable but often overlooked tax break—one that does phase out at higher incomes. For families navigating today’s economic challenges, understanding these rules can mean thousands in savings. As tax laws evolve, staying informed will be key to making the most of every available benefit.