The child tax credit is designed to give an income boost to parents or guardians of children. Your income level determines exactly how much you can get. Tax credits directly reduce the amount you owe the IRS. If your tax bill is $3,000 but you’re eligible for $1,000 in tax credits, your bill is now $2,000.
The child tax credit is a kid-focused federal tax credit. It’s an effective way to reduce your tax bill.
The tax credit is worth up to $2,000 per qualifying child. Here are the basics of who qualifies:
- The child is your son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister or a descendant of any of them.
- An adopted child always is treated as your own child.
- The child is younger than 17 at the end of the tax year.
- You claim the child as a dependent on your federal tax return.
- The child didn’t provide over half of his or her own support for the tax year.
- The child lives with you for more than six months of the year.
- The qualifying child must have a valid Social Security number issued before the due date of the tax return, including extensions.
- The child doesn’t file a joint return for the year or files it only to claim a refund of withheld income tax or estimated tax paid.
- The child must be a U.S. citizen, a U.S. national or a U.S. resident alien.
Up to $1,400 of the credit can be refundable for each qualifying child. This means if you qualify for the child tax credit and it brings your tax liability below zero, the IRS will still send you the remaining amount of the credit, up to $1,400. You may get a refund even if you don’t owe any tax. You need to have earned at least $2,500 to qualify for the child tax credit.
If you have a dependent, you may be able to claim the credit for other dependents. That’s a nonrefundable credit of up to $500 for each eligible dependent who cannot be claimed for the child tax credit.
As adjusted gross income increases, the child tax credit phases out, starting with $200,000 for single filers and $400,000 for joint filers. You can’t claim any of the credit if your income is more than $240,000 (single) or $440,000 (joint).
This is just an introduction to a complicated topic — there are more provisions, and the amounts and limits may change. To be sure you’re in compliance but not leaving any money on the table, work with a financial professional.
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