14 June 2022
TOPIC: Child Tax Credits
This is one of many guides that teaches you various tax-saving opportunities available.
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Today you will be learning about child tax credits. You will find out what they are, who can qualify for the credits, and much more. Keep reading to learn about this fantastic tax credit!
What are Child Tax Credits?
As you know, the government offers tax breaks for many things they value as important.
Of course, families are essential to our economy, so they created this non-refundable tax credit to help offset the expenses associated with having kids and raising a family.
Who Can Qualify For The Credit?
Now the good thing is almost anyone can qualify for this tax credit.
The government says anyone can claim this credit assuming they have a “qualifying child” in their care and are within the income limits.
To be considered a “qualifying child,” your dependent must:
- Be under the age of 18 at the end of the year.
- Have been a U.S. citizen & have a social security number valid for employment
- Be your child, stepchild, eligible foster child, sibling, step-sibling, or a descendant of one of those (grandchild, nephew, niece, etc.)
- Your child can’t be mostly independent. Meaning the child pays for more than 50% of all their expenses.
- They have to live with you for more than six months.
- They must be claimed as dependent on your tax return.
- They must not file a joint tax return with their spouse.
- They can’t file their return to only claim a refund of withheld income tax or estimated tax paid.
For you to be eligible for the credit, you must not make more than:
- $150,000 if you’re married and filing jointly
- $112,500 if you are filing as head of household
- $75,000 if you are single or married, filing separately.
How Much Can I Save?
Before the year 2021, families used to receive $2,000 per qualified child. The child tax credit refundable portion was worth $1,400 per child.
However, under the American Rescue Plan of 2021, the credit was increased from $2,000 to $3,600 for qualifying children under age 6 and $3,000 for other qualifying children under age 18.
Note: For the tax year 2022, the refundable portion will be $1,500.
There is no limit on the number of children that can qualify for this tax credit either. The critical thing to remember is that this tax credit will take away how much you owe by exactly $3,000-$3,600.
For example, if you owed $10,000 in taxes and claimed a $3,000 child tax credit, that $3,000 will be deducted from the $10,000 you owe.
Meaning you will only owe $7,000 in taxes! That’s a huge tax saving for just one tax credit applied to your tax bill.
Note: For a better understanding of how tax credits work, click here.
How To Claim The Tax Credit?
To claim this tax credit, you will need to enter your children and other dependents using Form 1040 and attach a completed Schedule 8812.
Most tax-filing software will also do it for you.
Child Tax Credits (Extra)
When it comes to child tax credits, there are two other terms that you should be aware of: additional child tax credits & advance child tax credits.
Now, normally child tax credits are non-refundable. However, there is something called additional child tax credits, which are refundable.
You may receive additional tax credits if your credit exceeds the total income taxes you owe.
In 2021 our government created an advance child tax credit under the American Rescue Plan of 2021.
It allowed advance payments of up to half the Child Tax Credit to be sent to eligible taxpayers.
So not only was the credit limit increased in 2021, but people could receive up to half ($1500–$1800) of that money right away.
Can Child Support Take Child Tax Credits?
Usually, parents who pay child support cannot claim child tax credits. In addition, you cannot claim advance child tax credits if you or your spouse are past due on child support.
Also, the advance payments cannot be reduced for overdue taxes from previous years or other debts you might owe.
It’s on a case-by-case basis, but if you have joint custody of the child, you and your spouse can apply for the tax credits.
Note: If you want to learn more about advanced child tax credits, click on the link below to read our other blog covering the topic.
To Summarize
Child tax credits are one of the best tax-saving opportunities available to us. The income limit is favorable, and as long as your child is young and a U.S. citizen, you can receive thousands of dollars off your tax bill.
It’s one of the most family-friendly tax credits available that every loving parent should apply for ASAP.
