Child Tax Credit: Everything You Need to Know
Introduction:
The Child Tax Credit is a tax benefit provided by the government to help families with the cost of raising children. It can significantly reduce your tax liability and put money back into your pocket. In this article, we will answer some frequently asked questions about the Child Tax Credit.
1. What is the Child Tax Credit?
The Child Tax Credit is a non-refundable credit that allows eligible taxpayers to claim up to $2,000 per qualifying child under the age of 17. This means you can subtract up to $2,000 from your total tax bill for each qualifying child.
2. Who qualifies for the Child Tax Credit?
To qualify for the credit, several criteria must be met:
– The child must be under 17 years old at the end of the tax year.
– The child must be related to you (biological or adopted), have lived with you for more than half of the year, and meet certain residency requirements.
– The child must have a valid Social Security number.
– Your income must fall within certain limits based on your filing status.
3. Is there an income limit for claiming the credit?
Yes, there are income limits that determine eligibility for claiming the full amount of the Child Tax Credit. For married couples filing jointly, phase-outs begin at $400,000; for single filers or heads of household, they begin at $200,000.
4. Can I still claim a portion of the credit if my income exceeds these limits?
Yes! Even if you exceed these income thresholds but still meet other eligibility criteria mentioned earlier, you may qualify for a reduced amount called Additional Child Tax Credit (ACTC). The ACTC is refundable up to 15% of earned income exceeding $2,500 per child and may result in receiving a tax refund even if no taxes were owed initially.
5. Are all children eligible for the credit?
No, not all children are eligible. The child must be a U.S. citizen, a U.S. national, or a U.S. resident alien to qualify for the Child Tax Credit.
6. How do I claim the Child Tax Credit?
To claim the Child Tax Credit, you need to fill out Form 1040 or 1040-SR and attach Schedule 8812 (Child Tax Credit). You will need to provide your child’s Social Security number on this form.
7. Can I claim the credit if my child has an Individual Taxpayer Identification Number (ITIN) instead of a Social Security number?
No, starting from tax year 2021 onwards, you can only claim the credit if your child has a valid Social Security number.
8. Can both parents claim the Child Tax Credit for the same child?
Generally, only one parent can claim the credit per qualifying child in cases of divorce or separation. However, there may be exceptions based on custody agreements and other factors.
9. What happens if my tax liability is less than $2,000 per child?
The Child Tax Credit is non-refundable up to $2,000 per qualifying child but cannot exceed your total tax liability. If your tax bill is lower than $2,000 per child after subtracting other credits and deductions, you may not receive the full amount as a refund.
10. Is there any way to receive advance payments of the Child Tax Credit?
Starting in July 2021 due to changes made by the American Rescue Plan Act (ARPA), eligible taxpayers may receive advance payments of their projected annual Child Tax Credits through direct deposits or checks issued periodically by the IRS until December 2021.
11. Are there any changes made specifically for tax year 2021 under ARPA?
Yes! Under ARPA:
– The maximum credit amount increased from $2,000 to $3,000 per qualifying child aged 6 to 17 and $3,600 for children under the age of 6.
– The credit is now fully refundable, meaning taxpayers can receive the entire amount even if they owe no tax.
– The maximum age limit increased from 16 to 17 years old.
12. Are there any other credits related to the Child Tax Credit?
Yes! There’s a separate credit called the Child and Dependent Care Credit (CDCC) that helps with childcare expenses for children under 13 or disabled dependents of any age. It works in conjunction with the Child Tax Credit but has its own eligibility criteria and limitations.
Conclusion:
The Child Tax Credit can provide significant financial relief for families by reducing their tax liability or potentially resulting in a refund. By understanding the eligibility requirements and following proper filing procedures, you can maximize this beneficial tax credit and support your family’s financial well-being. Remember to consult a qualified tax professional or use reputable software for personalized advice based on your specific circumstances.