Oh, the joys of having children!
Today, it is difficult for parenthood to have its rewards. Children want us to buy them the most expensive toys and clothing and that spending can sometimes feel fruitless. As with struggling to finish a marathon, we strive, hoping there will be a light at the end of the tunnel. Luckily the IRS understands this struggle and gives parents a little something back. The Child Tax Credit and the Additional Child Tax Credit serve as the cushioned shoe inserts that help us finish.
Child Tax Credit (CTC) Facts:
- You must have a qualifying child.
- You must have earned greater than $3000 of Income.
- Each child can receive up to $1000.
What is a qualifying child?
In order for your child to be a qualifying child, they must meet the following requirements:
Age: Must be under 17 before December 31.
Dependent: Must be claimed as a dependent on your tax return.
Citizenship: Must be a United States citizen, a national United States citizen, or a green card holder
Residency: Must have lived with you for half the year or more.
Support: Must have been provided more than 50% of their finances by you.
Income: The CTC is determined according to your filing status and Adjusted Gross Income. Thus, the higher your income bracket, the lower the credit.
Relationship: The child must be related to you in one of the followings:
- Son or daughter
- Legally adopted son or daughter
- Stepson or stepdaughter
- Brother or sister
- Stepbrother or stepsister
- Niece or nephew
- Foster son or daughter
Did you answer yes to all of those requirements? Congratulations, you qualify!
What causes the Child Tax Credit to decrease?
Based on your Filing Status, if your income exceeds the following thresholds below, the child tax credit decreases $50 for every $1000 above the income threshold.
- $55,000 for married filing separately
- $75,000 for single or head of household, qualifying widow or widower filers
- $110,000 for married couples filing jointly.
- Grace has an AGI of $80,000, has one child and is electing the head of household filing status. Therefore, Grace exceeds this threshold by $5000 since the Head of Household threshold is $75,000. As a result, her CTC was reduced by $250 so she received $750.
- William has an AGI of $53,000, filing two dependents and he is electing the filing married separately. The married filing separately threshold is $55,000. Therefore he falls under the married filing status threshold. As a result, each child qualifies for a total of $1000. He will receive the CTC for $2000.
What is the limit of the Child Tax Credit?
The Child Tax Credit is a non-refundable credit which can only reduce your income tax to zero. Furthermore, the Child Tax Credit limits your credit to cover your tax due. Let’s say you qualify for the $1000 CTC but your income tax is $500. The CTC is limited to your tax and you will receive a credit of $500.
What happens to the rest of the credit?
The remainder of the credit is the Additional Child Tax Credit (ACTC). This credit is treated as a refundable tax credit.
Let’s look at an example to see how this credit works.
John and Sally are married filing jointly and have one dependent who is under 17. Although they received a total of $1000 for their child the Child Tax Credit was limited to $500. As a result, the remaining $500 is treated as a refundable ACTC credit.
What if I have more than one child?
The more the merrier! If you have more than one qualifying child, then you are eligible to receive up to $1000 per child.
Someone else claimed my Dependent.
You had taken care of your child all year, provided the world of happiness, bore numerous expenses and then you come to realize that the IRS rejected your return due to this dependent? You have no need to worry. We can help you figure this out.
Can I still get the CTC?
Since the IRS works on a first come first serve basis, we advise that you file your return as soon as possible. If someone else has claimed the exemption and you are confident that this is your qualifying dependent, you can still claim the credit. However, the return must be paper filed. Once you do so, the IRS will provide you with further instructions.
Can I get the Child Tax Credit if I did not work?
The IRS only grants a credit if you worked and earned taxable income, whether it is from your job or business. Unfortunately, if you did not earn any income, you cannot receive a tax credit.
How will I know if I met the Requirement for the CTC?
File with our website, and we automatically determine whether you qualify for the Child Tax Credit, you do not need to pull out the calculator to determine your credit amount. Our website will conveniently calculate the credit for you. Our staff is ready to answer any additional questions you may have. Feel free to contact us for any additional questions or clarifications.