As a tax professional, the most common question I get asked is about the child tax credit. The Child Tax Credit is a credit available to families with children under the age of 17. This is an opportunity to significantly reduce your tax bill or guarantee a refund for you. In this article, we will discuss everything you need to know about child tax credit.
1. Conditions for participation
In order to be eligible to receive a tax minus for children, you must meet these aspects:
• Your child must be under 17 years of age.
• The child must be a US native, US citizen, or US resident alien.
• The child must live with you for more than six months.
• The child must have a public security number.
• Your earnings must be below the designated threshold.
2. Loan amount
The largest child tax credit is $2,000 per eligible child. However, this amount can be changed depending on your income, downwards. The phase-down starts at $200,000 for individual applicants and $400,000 for general applicants.
3. Additional tax credit
If your child tax credit is higher than the amount of taxes you are required to pay, you may be eligible for additional child tax credit. This credit is refundable, which means that you can get it as a refund, even if you do not have to pay any taxes. The largest such child tax credit is $1,400 per child who meets the conditions above.
4. Specific child
In order to be able to receive a tax deduction for children, he must meet specific aspects:
• The child must be under 17 years of age.
• The child must be your direct relative (son, daughter, stepson, adopted child, brother, sister, half-brother, half-sister, half-brother, half-sister, etc.).
• You must have lived with the child for more than six months.
• The child is not required to provide more than fifty percent of his own maintenance in the current year.
• The child must be a US native, US citizen, or US resident alien.
• The baby must have a public security number.
5. Income limits
To be eligible for the perfect child tax credits, your earnings must be below a certain threshold. The threshold is US$200,000 for single applicants and US$400,000 for general applicants. The loan is subject to a phase-out of income above these thresholds.
6. How to get a child tax credit
In order to receive a tax credit for children, you must file a tax return and fill out IRS Form 8812 “Additional Tax Credit for Children”. It is sufficient to provide the name and social security number of each eligible child. The credit will then be given to your tax bill or given to you as a refund.
7. Changes to the Child Tax Credit in 2021
The tax credit for children has been significantly changed. These changes include:
• The loan limit has been increased to $3,000 for a child aged 6 to 17 and $3,600 for a child under 6.
• The loan is now fully refundable, which means you can get it as a refund even if you don’t have to pay any taxes.
• Income limits for loans have been increased to $75,000 for individual applicants, $112,500 for heads of household, and $150,000 for general applicants. Credit is subject to a phase-out for profits above these thresholds.
• The loan is now advanceable, which means that you will be able to receive monthly payments from July to December, and the remaining portion of the loan will be shown on your tax return.
8. Advance payments for child tax credits
The more important change in the Child Tax Credit is the likelihood of a down payment. Starting in July 2021, eligible families have a good chance of receiving up to fifty percent of the estimated child tax credits in monthly installments through December. The remaining credit will be claimed on their tax return.
Families that file a 2021 or 2022 tax return and claim a tax deduction or have a stimulus payment do not have to take almost any steps to receive advance payments. Payments will be mechanically deposited into a bank account on an IRS file or sent by mail as a paper check.
For families that didn’t file a tax return in 2021 or 2022, the IRS has made an online Non-Filer Sign-Up Tool. This tool allows families to provide the necessary information to receive advance payments.
It is important to note that advance payments are based on estimates and may not be accurate for everyone. Families that receive more than their actual child tax credits are likely to be required to pay the excess amount needed on their 2022 tax return.
9. Impact on Taxes
Receiving the Child Tax Credit can significantly reduce your tax bill or provide you with a refund. However, it’s essential to understand the impact on your taxes before you make any decisions.
If you choose to receive the advance payments, you may receive less of a refund or owe more taxes when you file your 2023 tax return. This is because the advance payments are based on estimates, and your actual Child Tax Credit may be different.
On the other hand, if you choose not to receive the advance payments, you may receive a larger refund or owe fewer taxes when you file your 2023 tax return. This is because you will receive the full amount of your Child Tax Credit when you file your tax return.
It’s essential to speak with a tax professional to determine the best course of action for your specific situation.
10. Other Considerations
When considering the Child Tax Credit, it’s important to keep in mind the following:
- The Child Tax Credit is not the same as the Child and Dependent Care Credit, which is a credit for childcare expenses.
- The Child Tax Credit is not available for children over the age of 17.
- The Child Tax Credit is subject to change, and eligibility requirements may change.
Conclusion
The Child Tax Credit is a valuable credit that can significantly reduce your tax bill or provide you with a refund. The recent changes to the credit, including the advance payment option, make it even more accessible to families who need it the most.
However, it’s essential to understand the eligibility requirements, income limits, and impact on your taxes before you make any decisions. Speaking with a tax professional can help you determine the best course of action for your specific situation.
The Child Tax Credit is an essential tool for families with children and understanding how it works can help you make the most of it.
Read more about Tax Credit For Dependents
