If you have children or other dependents under the age of 17, you likely qualify for the Child Tax Credit. In 2021, it was temporarily expanded as part of the American Rescue Plan, which was signed by President Biden in March of that year to help families deal with the financial hardships stemming from the COVID-19 pandemic. There are a number of income limits you should know about when planning how much you’ll receive. Planning for your family’s finances goes beyond taxes. A financial advisor can help you create a long-term financial plan.
What Is the Child Tax Credit, and How Does It Work?
The Child Tax Credit (CTC) is designed to give an income boost to the parents or guardians of children and other dependents. This credit applies to dependents who are 17 or younger as of the last day of the tax year.
The child tax credit is limited to $2,000 for every dependent you have who’s under age 17,$1,600 being refundable for the 2023 tax year. That increases to $1,700 for the 2024 tax year. Modified adjusted gross income (MAGI) thresholds for single taxpayers and heads of household are set at $200,000 to qualify, and $400,000 for joint filers.
As a reminder, tax credits directly reduce the amount you owe the IRS. So, if your tax bill is $3,000, but you’re eligible for $1,000 in tax credits, your bill is now $2,000. This differs from a tax deduction, which reduces how much of your income is subject to income taxes.
The American Rescue Plan temporarily increased the CTC for tax year 2021 to help filers cope financially with the pandemic. At that time, the credit was worth up to $3,600 per dependent, though your income level determined exactly how much you’d get. As you can tell above, the credit has since come back down to its normal state post-pandemic.
For the 2021 expanded child tax credit, the IRS began sending half of the credit as payments on the 15th of every month from July and through December, with the other half being claimed by families on their tax returns. As of now, this process no longer exists, meaning qualifying families will only get the credit when they file their return.
Which Dependents Are Eligible for the Child Tax Credit?
Eligibility for the CTC hinges on a few factors. The child you claim as your dependent has to meet seven pieces of criteria from the IRS:
- Age Test: The child was under age 17 at the end of the tax year. The CTC is increased for children under age 6.
- Relationship Test: The child is your daughter, son, stepchild, foster child, adopted child, brother, sister, stepbrother, stepsister, half-sister or half-brother. The child can also be the direct descendant of any of those just mentioned (your grandchild, niece or nephew).
- Support Test: The child did not provide more than half of their own support for the tax year. The child also cannot file a joint return that year.
- Dependent Test: The child must be claimed as your dependent on your federal tax return.
- Citizen and Resident Test: The child has to be a U.S. citizen, a U.S. national or a U.S. resident alien. The child must also have a Social Security number.
- Residency Test: The child must have lived with you for more than half of the tax year.
- Income Test: This is the same requirements as the ones listed earlier. In short, the CTC begins phasing out for families with income above $200,000 (single filers) or $400,000 (joint filers).
How to Claim and Track Your Child Tax Credit
Here’s what you need to know about claiming your credit. Eligible filers can claim the CTC on Form 1040, line 12a, or on Form 1040NR, line 49. To help you determine exactly how much of the credit you qualify for, you can use the Child Tax Credit and Credit for Other Dependents Worksheet provided by the Internal Revenue Service. If you need to file a return for a year before 2018, you can only claim the credit on Forms 1040, 1040A or 1040NR.
Eligible recipients who did not receive the right amount or nothing at all should verify their information on the IRS Child Tax Credit Update Portal. For cases where the portal shows that payment has already been disbursed but not received, a trace or inquiry to locate funds can be filed by mailing or faxing Form 3911 to the agency.
There could be a payment delay depending on the disbursement method. The IRS says that it can trace payments:
- 5 days after the deposit date and the bank says it hasn’t received the payment
- 4 weeks after the payment is in the mail by check to a standard address
- 6 weeks after the payment is in the mail, and you have a forwarding address on file with the local post office
- 9 weeks after the payment is in the mail, and you have a foreign address
The agency updates its frequently asked questions page with information about Child Tax Credit payments and posts notifications about delays.
Other Credits for Children and Dependents
There are additional federal and state provisions that help families care for children and other dependents.
Child and Dependent Care Tax Credit (CDCTC)
You can claim this credit if you have earned income and if you’re paying someone else to care for a dependent. Unlike the CTC, which you can only claim if you’re the parent or guardian of minor children, you can claim the CDCTC for aging parents and other disabled relatives. Qualifying dependents for the CDCTC include the following:
- Children who are 12 or younger at the end of the tax year
- Dependent adult family members or spouses who are not able to care for themselves due to mental or physical impairments, unless they have a gross income of $4,300 or
With the CDCTC, you can claim a credit from 20% to 35% of qualified care expenses for tax year 2023 (which you file in 2024). The exact percentage that you are eligible to deduct depends on your income level. The maximum amount of care expenses to which you can apply the credit is $3,000 if you have one dependent and $6,000 if you have more than one dependent.
The CDCTC is non-refundable. According to the IRS, expenses that qualify for the CDCTC include money that you paid “for household services and care of the qualifying person while you worked or looked for work.” Child support payments do not qualify. To claim the CDCTC, you need to fill out Form 2441.
Some states offer a complementary state-level CTC and/or CDCTC that matches part or all of the federal credit. In some states, the credits are refundable and in other states, they are not. This state-by-state guide breaks down which states offer their own Earned Income Tax Credit or CDCTC.
The IRS offers child tax credits to help parents and guardians offset some of the costs of raising a family. If you have a dependent who isn’t your direct child, you may also be eligible to claim a credit. And because some child tax credits are refundable, you might even make some money in the end. Remember that the information surrounding child tax credits can change each year. In turn, it’s important to keep up on the current laws each tax year so you know what to expect.
Tips for Saving on Your Taxes
- A financial advisor can help you optimize your tax strategy. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- To make sure you don’t miss a credit or deduction that you qualify for, use a good tax software. Check out SmartAsset’s breakdown of online tax software to find a suitable option.
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