Child Tax Credit (CTC)

What is Child Tax Credit (CTC) ?

The Federal Child Tax Credit is a tax benefit paid to US taxpayers for each eligible dependent child. It is designed to help taxpayers support their families, a credit that was greatly expanded for 2021 taxes by the American Rescue Planning Act. Recent reports suggest that the cost of child-rearing over a child's lifetime is more than $200,000, meaning raising children is expensive, so the child tax credit can pay back money in a timely manner to help with those costs. If you owe taxes, the Child Tax Credit can reduce the amount of income tax you pay. If your credit exceeds the taxes you owe and you earn less than approximately $75,000 ($112,500 for heads of households and $150,000 for married couples), you get the extra money back in your tax refund. You will get the full amount of Child Tax Credit as tax refund if you do not owe tax.

CTC helps offset the cost of raising children and it reduces the tax liability of taxpayers on a dollar-by-dollar basis. Almost every family is eligible to receive the 2022 Child Tax Credit. This includes families who have not filed tax returns and families with no recent income. Each eligible family under the CTC is eligible to receive up to $3,600 for each child under the age of 6, and up to $3,000 for each child between the ages of 6 and 17. Families can get half of their credit through monthly payments in 2021 and the remaining half in 2022 when they file their tax returns. CTC is a refundable tax benefit that is claimed by attaching Schedule 8812 to the return and filing Form 1040. To qualify for Child Tax Credit, a taxpayer's dependent must generally be 18 years old, provide no more than half of their own financial assistance, have lived with the taxpayer for more than half a year, and Must be a specific relative.

Features of Child Tax Credit 

  • The United States Federal Child Tax Credit is a partially refundable tax credit for parents with dependent children.
  • In 1997, the child tax credit was created as part of the Taxpayers Relief Act 1997.
  • The Build Back Better Act will extend the extension for an additional year and make full-withdrawal eligibility permanent.
  • The expansion of the Child Tax Credit in the American Rescue Plan Act reduced child poverty by 26% and would have reduced child poverty by an additional 40% if all eligible households claimed the credit.
  • The credit was substantially expanded by the American Rescue Plan Act 2021 and made available to very low-income individuals for one year.
  • If you also claim the foreign earned income exclusion, you are not able to claim the refundable portion. This means that CTC will not automatically give a refund on your return.
  • You can apply for a U.S. resident abroad to reduce the tax payable on your federal return. The citizen's child can use a nonrefundable portion of the tax credit.

How the Child Tax Credit Works ?

Full repayment protection is applicable for taxpayers whose MAGI does not exceed the following:
  • $50,000 for head of households.
  • $60,000 for joint returns and eligible widows and widowers.
  • $40,000 for single filers or married individuals.
No repayment protection is available for taxpayers with MAGI :
  • $100,000 for the head of the household.
  • $120,000 for joint returns and eligible widows or widowers.
  • $80,000 for single filers and married people filing separate returns.
In January 2022, the IRS sent 6419 letters to taxpayers informing them of the full amount of advance payments they received in 2021. Taxpayers should retain this letter in their tax records when preparing their tax returns for 2021. Pay withholding can be adjusted to reflect advance payments and child tax credit. The IRS website provides comprehensive information on how to qualify for the child tax credit, how to deal with advance credit payment issues, and the rules for calculating the amount.

Who Is Eligible for the Child Tax Credit ?

The requirements are often more difficult to meet for a qualifying child. Only a single taxpayer can medicate for the Child Tax Credit for a single dependent and the taxpayer must have a Social Security number. Following are the main criteria for claiming CTC :
  • Children must be "qualifying children".
  • The person availing the credit must be a qualified taxpayer.
  • The dependent child must meet the requirements of the tax law.
  • The child must be 18 years of age or younger at the end of the year.
  • The child must be considered a dependent for tax filing purposes.
  • You do not need to earn to claim for CTC.
  • Should not provide more than half of their own financial aid.
  • You and your spouse must each have an Individual Taxpayer Identification Number (ITIN) or Social Security Number (SSN).
  • The eligible child must be your son, daughter, step-child, grandson, adopted child, younger sibling, half-brother, half-sister or foster child placed with you by a government agency.
  • Child with you Must have lived for more than half a year (the time together should not be continuous). There is an exception for the non-custodial parent, who is allowed to claim the child as a dependent by the custodial parent.

What is the Child Tax Credit Income Limit ?

The credit is maxed out for filers earning less than $75,000 for single filers, $150,000 for married filing jointly and $112,500 for head of household. The first phase of the Child Tax Credit limits the CTC amount for every $1,000 of modified adjusted gross income that the taxpayer has over the above amount. The first phase ends when the credit is reduced to $2,000 per qualifying child. Phase II applies the same deduction exercise starting at $200,000 for all other filing situations and $400,000 for married couples filing joint returns.

You must fulfil the income requirements of having an adjusted gross income of less than $200,000 if you file as an individual or less than $400,000 if you file a joint return with a spouse in order to be eligible for the Child Tax Credit as a parent or guardian in 2023.

How much can I get with the Child Tax Credit ?

If your credit exceeds the taxes you owe or you don't owe any taxes, you get the extra money back in your tax return. Depending on the size of your income, there is $3,000 for each child between the ages of 6 and 17 and a $3,600 child tax credit for each child under the age of 6.

How to Claim Child Tax Credit ?

Taxpayers may be able to claim CTC even if they do not normally file a federal tax return. To claim the Child Tax Credit, a taxpayer must file Form 1040 (U.S. Individual Income Tax Return). The taxpayer must attach Schedule 8812 (Credit for Qualifying Children and Other Dependents). Schedule 8812 is used to determine the amount of CTC eligible for a taxpayer.

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