Child Tax Credit Explained - 2023 Updates
Tax credits like the Child Tax Credit (CTC) can be monumental in helping working families with qualifying children manage the costs of childcare, education, health, housing, food, and transportation.
TABLE OF CONTENTS
- The Child Tax Credit (CTC) is a partially-refundable tax credit that allows working families to apply for up to $2,000 for each qualifying dependent they claim on their tax returns.
- The American Rescue Plan of 2021 revised tax relief programs like the Child Tax Credit to assist with the economic impact of the coronavirus pandemic by increasing the amounts of the tax credits to $3,000 for qualifying children between the ages of 6 and 17, and $3,600 for children under the age of 6.
- To be eligible for the Child Tax Credit, the child must be of the right age and dependent status and have the appropriate relationship with the tax filer. The child must have also lived with and been financially dependent on the filer for more than half of the year. The dependent must also have a valid Social Security number and meet the income requirements.
- The taxpayer will use the IRS Form 1040, U.S. Individual Income Tax Return, as well as Schedule 8812, Credits for Qualifying Children and Other Dependents to apply for the child tax credit.
What Is The Child Tax Credit?
The child tax credit is a form of tax relief that allows American taxpayers with children to reduce what they owe in federal taxes.
The child tax credit is an example of a partially-refundable tax credit in which the taxpayer can receive excess money as a tax refund in the case that the credit amount is greater than the total tax bill. This additional money that is refundable is called the “additional child tax credit” by the IRS, allowing taxpayers to claim a refund of up to $1,500.
Child Tax Credit Amount
The child tax credit offers up to $2,000 for each dependent child as long as all of the eligibility requirements are met.
American Rescue Plan
The American Rescue Plan Act of 2021 revised the policies of certain tax relief programs to assist with the economic impact of the COVID-19 pandemic, including the child tax credit. As of March 2021, the amounts of the child tax credits for that year were increased to $3,000 for children between the ages of 6 and 17, and $3,600 per qualifying dependent under the age of 6. Additionally, this credit was made available to low income families, including 17-year-olds, for the first time.
Who Is Eligible For The Child Tax Credit?
The eligibility requirements to receive the child tax credit include:
Age of the child: Taxpayers must have a child who is under the age of 17 at the end of 2022 to be considered eligible for the child tax credit.
Relationship with the child: To be considered for the child tax credit, the child you claim on your tax return must be your biological child (son or daughter), stepchild, a foster child placed with you by a government agency, sibling (brother or sister), half-sibling, stepsibling (stepbrother or stepsister), or a descendent of any of those people, such as a niece, nephew, or grandchild.
Dependent status: The child you claim for a child tax credit must meet the eligibility requirements of a dependent that you care for.
Residency: In general, a child must have lived with you for at least 6 months out of the year to be considered eligible for the child tax credit.
Financial Support: The taxpayer must have financially supported the child for at least 6 months out of the year for them to be considered eligible for the child tax credit. If the child financially supports themselves, they may not be considered qualified.
Citizenship: According to the IRS, the child you claim must have a Social Security number and be considered a “U.S. citizen, U.S. national, or U.S. resident alien” to be considered for the child tax credit.
Income: There are maximum income requirements for caregivers or parents to qualify for the full child tax credit, which are $200,000 for single filers and $400,000 for couples filing their tax returns jointly. The credit is incrementally reduced by $50 for each $1,000 of their modified adjusted gross income that exceeds the income threshold until eventually the credit is eliminated.
How To Claim The Child Tax Credit
The taxpayer will use the IRS Form 1040, U.S. Individual Income Tax Return, as well as Schedule 8812, Credits for Qualifying Children and Other Dependents to claim the child credit on their tax return. These forms allow the taxpayer to calculate the credit amount and how much of the partial refund they can claim for being responsible for their children’s wellbeing.
If you need help filing tax returns for your family, getting assistance from the experts at Ideal Tax makes the experience of tax filing easy.