Since its inception in 1997, the child tax credit has been helping Americans with the cost of raising children. The credit came into existence through the Taxpayer Relief Act. Under the child tax credit, any taxpayer with a dependent child is eligible for up to $2000 credit per child. In this article, you will learn a few things you need to know about the Child Tax Credit.
According to Garret Watson, a senior policy analyst at the Tax Foundation, “the average Child Tax Credit benefits range from $619 (for Americans who earn less than $10,000) to about $2380 for those who make more than $200,000.
And about 48 million Americans claimed the credit in 2019.” The number includes families that have more than one qualifying child.
President Biden’s Plans to Expand Child Tax Credit as Part of Covid-19 Relief Stimulus Package
One of the things you need to know about the child tax credit is that President Joe Biden intends to change the child tax credit temporarily. The changes, according to the President, are part of the larger Covid-19 relief package.
Once Congress approves the changes, the maximum child tax credit will increase from $2000 to $3000 for every child aged 17 and below. And for a child under the age of 6, the temporary new child tax credit will be $3600.
Surprisingly, it’s part of President Biden’s plan to make the child tax credit fully refundable for one year.
The reason behind the expansion of Biden’s administration’s child tax credit initiative is to help low-income families.
According to President Biden’s American Rescue Plan Factsheet, 27 million American children live in low-income households; as a result, they aren’t qualified to enjoy the Child Tax Credit.
However, the expansion initiatives would give low-income families with children the much-needed additional resources.
According to the Washington Post, senior Democratic lawmakers are working on legislation allowing the IRS to directly make payments to families eligible for the Child Tax Credit.
The proposed legislation stipulates that for every child under the age of 6, families would receive $300 monthly. And every child who is within 6 to 17 years would receive $250.
What is Child Tax Credit (CTC)?
Just like every other credit, the child tax credit reduces the amount you owe in taxes. Interestingly, it’s refundable if you don’t owe any taxes. That means you can claim your qualifying child tax credit as a refund.
However, the IRS always pays much attention to Child Tax Credit. They set the refundable amount limit to $1400 per child.
One of the things you need to know about the Child Tax Credit is that it provides additional tax liability for families with high incomes and a source of income during the tax season for lower-income households.
It’s a way of moving money from an area where it’s surplus to a place of deficit.
Children Who Qualify for the Child Tax Credit
One of the things you need to know about the child tax credit is the requirements for children to qualify. Generally, a child is qualified as a dependent to benefit from the Child Tax Credit if they meet the following criteria;
#1. They have a Valid Social Security Number
One of the requirements for your child to qualify for the child tax credit is to have a valid social security number. Regardless of your child’s age, without an SSN, they aren’t qualified for the CTC.
#2. They are Under the Age of 17
The age of your child is one of the most important qualifying criteria for the Child Tax Credit. Your child or children must be below 17 years old by the end of December 31st of the tax year.
This means that if your child is 17 years old or above, they are not qualified.
#3. They have U.S Citizenships or are U.S nationals or Resident Aliens
One of the most important things you need to know about the child tax credit is that a qualifying child must be a U.S citizen or resident alien.
#4. Your child Did Not Provide More Than Half of Their Support
One of the most important criteria for a child to qualify for the child tax credit is not providing more than half of their support.
Support in this context includes; their shelter, your food, clothing, utilities and repairs, health care, education, and other everyday costs.
#5. They Must Live with the Taxpayer
For a child to qualify for the CTC, they must be living with a taxpayer. However, there are a few exemptions to these rules, which include;
- When your child serves in the military or attends a school from home.
- Your child not being with you is due to vacation, medical care, or business concerns.
- Your child is in the detention home.
#6. They Must be Related to You
One of the things you need to know about the child tax credit is that a child must be related to the taxpayer before they are qualified for the CTC.
The child could be your son, daughter, stepchild, eligible foster child, sibling, step or half-sibling, etc.
How to Claim the Child Tax Credit on Your Tax Return?
It’s possible to claim the child tax credit on your federal income tax return (Form 1040, 1040-SR, or 1040-NR).
However, you need to include each of your qualifying child’s names and social security numbers on your tax return.
You can use the Child Tax Credit and Credit for Other Dependent worksheet to know your credit amount.
Again, if you don’t know how to complete the form, you can use online software for TurboTax, and H&R Block will guide you through it.