Last Updated on January 14, 2023 by Meghan
What is Child Tax Credit?
Child Tax Credit is specifically designed to support American families with dependent children. The purpose of this benefit is to help families reduce tax liability and to boost their income. Please note that it can work best for you if you meet all the federal requirements. Read this article to find out more about how the child tax credit works in the U.S.
How Does Child Credit Work?
The Child Credit is provided to families with children below 17 years and all taxpayers can benefit from this program; even those whose incomes are unearned and don’t owe the government any income taxes. What are the considerations when determining eligibility? Well, your child must be eligible for child credit for you to claim the benefits. Some of the factors that determine eligibility include age, citizenship, length of residency in the U.S., relationship, dependent status of the child, and annual family income. The American families qualifying for the child credit program receive up to $2000 benefits for every child under the age of 17. Your eligibility also depends on whether you have filed all your returns and if they are up to date. The regular child tax credit given to families is designed to lower your tax to $0. That means once your tax is lower to $0, you can qualify for any child tax credit because there will be no more available for you to receive the benefits as other families. Based on your specific circumstances, your family may qualify for the maximum amount of child tax credit given to U.S. families. What about the additional child tax credit? You may be eligible for the additional child tax credit, depending on your circumstances as evident in your tax returns. The additional child tax credit is refundable. That means you can still receive benefits even if your tax is $0. Learn more at https://turbotax.intuit.com/tax-tips/family/7-requirements-for-the-child-tax-credit/L3wpfbpwQ.
Child Tax Credit Eligibility Requirements
We will discuss the eligibility requirements mentioned above one by one:
- Age. Only children under 17 years qualify for the child tax credit in the U.S. this means that your child must be 16 years or younger at the end of the tax year during which you will claim the benefits.
- Relationship. When you have kids or under the care of children, the tax revenue authority must check the kind of relationship you have with the child. Are they your kids, stepchildren, or are they in foster care as directed by a child support agency or the court? If you have adopted the child question, the revenue authority will consider that as your own. You may also claim your niece, nephew, grandchild, stepbrother, stepsister, sister, or brother if they meet all the requirements.
- Dependent status. What is the dependent status of the child? To qualify for the child tax credit, you must indicate in your tax return that your child is dependent. For you to claim a child as a dependent, they must either be your children, sibling, niece, nephew, or grandchild. The child must be less than 19 years. Children below 24 years will be considered if they are full-time students. They must have also stayed in your residence for more than half a year and have provided less than half support for their wellbeing during the year.
- Residence. For your child(ren) to qualify for the child tax credit, they must have lived with you for more than half of the tax year. However, some exemptions may apply. A child born during the tax year is qualified and is considered to have lived with you for the whole year. The child is also considered to have lived with you during their times in school. Vacation, Medicare, military, or business.
- Family income. If your family income exceeds $200,000 or $400,000 for those married and is jointly filing child tax credit, your benefits will be reduced.
For more details, please visit https://smartasset.com/taxes/all-about-child-tax-credits.
The Expansion of Child Tax Credit in the American Rescue Plan
President Joe Biden has developed the American Rescue Plan, which is designed to help American families boost their income. Expansion of child tax credit is one of the ways through which the American Rescue Plan is seeking to strengthen the U.S. economy. The plan includes various measures designed to ease American families of their economic burdens. How does the plan expand the child tax credit for American families? Well, the amount of benefit per child has been increased from the initial $2,000 to $3,600. The families will receive half of the benefits in advance while the rest of the payment can be claimed in the next year when filing tax returns. Also, in the American Rescue Plan, the child tax credit is fully refundable. What else about child credit in the America Rescue Plan? The wealthier families received reduced child support payments. Individuals and couples earning more than $200,000 and $400,000 respectively will receive reduced payments. Starting July 2021, families will be eligible for up to $300 benefits for every child. Read more at https://fox8.com/news/child-tax-credit-what-you-need-to-know-about-advance-payments/.
Changes to the Child Tax Credit in Summary
- Increased child tax credit (per child) from $1,000 to $2,000.
- The child tax credit is now fully refundable.
- To qualify, children must have a Social Security number.
- Each child older than 17 can now earn up to $500.
Claiming Child Tax Credit
Are you an eligible filer? Then you can claim your child tax credit on line 49, line12a, form 1040, or Form 1040NR. Need to claim credit for a year before 2018? You can use forms 1040, 1040A, or 1040NR. Visit https://www.irs.gov/pub/irs-pdf/p972.pdf#page=6 to determine how many benefits you are likely to qualify for.