Home - Tax - Key Things To Know About Tax Credit For Children

Key Things to Know About Tax Credit for Children

Every citizen is responsible for paying taxes. But since these payments can sometimes be burdensome for families raising children, the government introduced the Child Tax Credit (CTC) in 1997. This scheme has benefited many parents and guardians over the years and has helped promote childcare and eradicate child poverty in the country. For the 2023 tax year (filing in 2024), this credit has been locked in at $2,000 for every qualifying child.

Key Things to Know About Tax Credit for Children

How does the CTC work?
As the name suggests, CTC is a non-refundable tax credit for taxpayers with dependent children (under the age of 17).

It works by reducing the overall tax bill on a dollar-for-dollar basis. This allows for much larger savings, as compared to tax deductions. If the credit exceeds one’s tax liability, the tax bill comes down to zero. However, any unused credit left over and above this is lost. Depending on one’s eligibility, taxpayers may qualify for the full amount ($2000) or a partial refund of the credit amount.

In previous years (2020-21), the CTC was also available to non-filers and those without work. With this arrangement, individuals could receive up to $3,600 in credit, over and above the stimulus check and other federal benefits such as SNAP and WIC.

Eligibility for CTC
According to the IRS, filers can “claim Child Tax Credit for every qualifying child with a Social Security Number valid for employment in the United States.”

The IRS further defines the criteria for a “qualifying child” for 2023. According to these rules, the dependent child must:

  • Be under the age of 17 at the end of the year.
  • Be the filer’s daughter, son, stepchild, eligible foster child, sister, brother, stepbrother, stepsister, half-brother, half-sister, or a descendant of one of these.
  • Have lived with the filer for more than half of the year.
  • Provide no more than half of their own financial support during the year.
  • Be properly claimed as a dependent on the filer’s tax return.
  • Not file a joint return with their spouse for the tax year OR file it only to claim a refund of withheld income tax or estimated tax paid.
  • Have been a US citizen, US national, or a US resident alien.

Taxpayers who meet the above criteria and have an annual income of not more than $200,000 (or $400,000 when filing a joint return) qualify to receive the full amount of the 2023 CTC. Those with higher incomes may be eligible for a partial refund.

Additional Child Tax Credit
Taxpayers who cannot take full advantage of the CTC (because they do not owe enough taxes) can also get a partial reimbursement on their credit amount. This is known as the Additional Child Tax Credit (ACTC). This amount is calculated on the basis of one’s income. However, for the 2023 tax year, it has been capped at $1600 per qualifying child.

To claim ACTC, taxpayers must also meet the following criteria:

  • Must have an earned income of $2,500 (from jobs or self-employment, and not from passive sources)  or  have three or more qualifying dependents.
  • Taxpayers cannot exclude foreign-earned income from the taxes by filing Form 2555 or Form 2555-EZ.

How to claim CTC?
CTC and ACTC can be claimed on federal tax returns, that is, Form 1040 or 1040-SR. These need to be duly filed by April 15, 2024. Taxpayers with an extension can file them until October 15, 2024.

In addition to the forms mentioned above, individuals are required to fill out and file Schedule 8812 (Credits for Qualifying Children and Other Dependents). This will help them work out the total credit amount and partial refund available to them. The filer and dependents must have valid Social Security numbers for the issuance of credit.

State CTC
In addition to the federal child tax credits, some states across the country also offer CTC. For this tax year, these credits are being offered by California, Colorado, Idaho, Maine, Maryland, Minnesota, Massachusetts, New Mexico, New Jersey, New York, Oklahoma, Oregon, Utah, and Vermont. However, it is important to note that eligibility requirements for this credit may differ for each state. It is recommended to visit the state department’s taxation website for more information regarding the same.

Other Dependent Credit
Taxpayers who qualify for CTC may also qualify for other credits such as Child and Dependent Care Credit, Earned Income Tax Credit, Adoption Credit and Adoption Assistance Programs, and Education Credits, which may help bring down the cost of childcare.

Those who do not qualify for CTC can file for credit for other dependents, including adults. Also known as ODC (Other Dependent Credit), this is a non-refundable tax credit of up to $500 per qualifying dependent who cannot be claimed for CTC or ACTC.

To help taxpayers understand their filing status and eligibility, the IRS website features an Interactive Tax Assistant. In addition to this, one can also turn to tax software to streamline the tax calculation and filing process.

Disclaimer:
The content provided on our blog site traverses numerous categories, offering readers valuable and practical information. Readers can use the editorial team’s research and data to gain more insights into their topics of interest. However, they are requested not to treat the articles as conclusive. The website team cannot be held responsible for differences in data or inaccuracies found across other platforms. Please also note that the site might also miss out on various schemes and offers available that the readers may find more beneficial than the ones we cover.
Previous Article

Featured Articles