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Tax Credits for Individuals

  1. Child Tax Credit
  2. EITC
  3. Form 5405
  4. Foreign Tax Credit
  5. IRS Publication 970
  6. Publication 972
  7. Form 1095-A
  8. ACTC
  9. Bush Tax Cuts
  10. Hope Credit
  11. Non-Refundable Tax Credit
  12. Tax Credit

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What Is Child Tax Credit & How to Claim It?

Updated: January 17, 2023

Raising a child is an expensive endeavor. 

In order to help taxpayers raise their children, the government installed what was known as the American Rescue Plan Act. This allowed an additional child tax credit for each eligible child who has an eligible Social Security Number that is valid in the United States that a family has.

Read on as we take a closer look at everything to do with the child tax credit.

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    KEY TAKEAWAYS

    • A refundable tax benefit known as the child tax credit can be claimed by completing Form 1040 with Schedule 8812 attached to the return.
    • A dependent must normally be 18 years old, be a specified relative as mentioned above, have resided with the taxpayer for more than half the year, and contribute no more than half of their own income to qualify for the credit.
    • For 2021 taxes, the credits for children for American taxpayers were $3,000 for children under the age of 18. Or $3,600 (for children under the age of 6); it was entirely refundable and could be obtained as monthly advance payments.
    • The credit will return to $2,000 and be partially refundable on an annual basis for the tax year 2022 as a result of the failure of legislation to prolong the higher credit for that year.

    What Is Child Tax Credit?

    The Child Tax Credit is an exemption from paying taxes given to American taxpayers for each eligible dependent child. To be a qualifying child for the 2021 tax year, your dependent generally must: 

    • Be under 18 at the end of the year 
    • Be your son, daughter, stepchild, sibling, half-sibling, niece, nephew, grandchild, or eligible foster child 
    • Provide no more than 50% of their own financial support during the year 
    • Have lived with you for more than 6 months of the year 
    • Be claimed as a dependant on your tax return 
    • Have been a United States citizen or a United States resident alien 
    • Not file a joint return with their spouse or file it only to claim a refund of withheld income tax or estimated tax paid 

    The American Rescue Plan Act of 2021 significantly increased this credit, which was created to assist taxpayers in supporting their families for 2021 taxes.
    In order to work in tandem with the earned income tax credit, the CTC was enhanced and made refundable in 2001. If you owe taxes, the CTC may be able to lower your income taxes.Child tax credit is subject to phase out.

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    How the Child Tax Credit Works

    Dollar per dollar, the Child Tax Credit reduces taxpayers’ tax obligations. The maximum yearly credit under the American Rescue Plan was raised from $2,000 per child (under age 17) in 2020 to $3,000 per child (under age 18) or $3,600 (children younger than 6), and the 2021 credit was made completely refundable.

    Additionally, starting in July 2021, the Internal Revenue Service (IRS) started disbursing advance payments of 50% of the Child Tax Credit amount to eligible taxpayers the Child Tax Credit in advance payments every month. The last payments were paid out in December 2021. Parents are not required to have a tax debt in order to get it because it is completely refundable.

    Who Is Eligible for Child Tax Credit?

    The person receiving the credit must be a qualified taxpayer, and the dependent child must also satisfy the tax law requirements in order to be eligible to claim the Child Tax Credit.

    Qualifying Taxpayer

    Other family members may qualify for the Child Tax Credit if the taxpayer provided more than half of their financial assistance during the tax year, even though most taxpayers claim credits in relation to their children or stepchildren. 

    Siblings, nieces, nephews, and grandchildren of a taxpayer who satisfies the dependency, citizenship, age, and residency conditions may qualify for credits. Children who are adopted or raised in foster care are also eligible for the credit.

    Even if the eligible child spends time in many households during the tax year, only one taxpayer may claim the Child Tax Credit. The tax credit is often given to the parent who had primary custody of the child. When there is joint custody, the single parents must decide how often each will take advantage of the credit—whether it will be every other year or according to some other schedule.

    The taxpayer and any eligible dependents must have Social Security numbers before the filing deadline for the taxpayer’s tax return and must disclose them on the return, in addition to completing the appropriate income and relationship requirements for the Child Tax Credit.

    Taxpayers who submit false claims for child tax credits will lose their right to do so for 10 years. Credits will be withheld from a taxpayer for two years if it is found that their claim was incorrect owing to careless or purposeful disregard of the law (but not fraud).

    Qualifying Child or Dependent

    The tax code specifies the number of elements that determine whether a child is eligible for the Child Tax Credit. People must be U.S. nationals, U.S. citizens, or U.S. resident aliens in order to be eligible.

    They also need to be listed as a dependent on the taxpayer who is claiming the tax credit and has lived with them for more than half of the tax year. Over the course of the year, the child cannot have contributed more than 50% of their own support.

    A nonrefundable credit up to $500 is available to qualified taxpayers for each dependent who is a qualifying resident for both 2020 and 2021.

    Taxpayers can utilize a helpful online tool provided by the IRS to determine whether their dependent  is eligible for the Child Tax Credit.

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    How to Apply for Child Tax Credit

    This program can be used without any tax software. However, you must use the instructions provided on Schedule 8812 (Form 1040 or 1040A, Child Tax Credit page) to claim the credit and file your taxes.

    The IRS decides if you qualify and enrolls you for advance payments based on the tax data you provided. To receive advance payments, there is no further action required on your part.

    For the 2021 Child Tax credit, the maximum credit is offered to tax filers making less than $75,000. As well as heads of families making less than $112,500 and married couples receiving less than $150,000. These figures were produced using the filer’s modified adjusted gross income (AGI).

    The Child Tax Credit has two phaseout thresholds. Every $1,000 that the taxpayer’s modified adjusted gross income exceeds the aforementioned amounts is subject to the first phaseout, which caps the Child Tax Credit amount. When the credit is decreased to $2,000 per eligible child, the first phaseout is finished. The second phaseout can reduce the remaining credit down to zero per child.

    How to Claim Child Tax Credit

    Even if they don’t typically file a federal tax return, taxpayers may still be able to claim the Child Credit. A taxpayer must submit Form 1040 in order to claim the Child Tax Credit (U.S. Individual Income Tax Return). A taxpayer must also include Schedule 8812. (Credits for Qualifying Children and Other Dependents).

    A taxpayer’s eligibility for the Child Tax Credit and the amount of additional taxes that could be due if they received more advance child tax credits than they actually needed are determined using Schedule 8812.

    Example of Child Tax Credit

    Let’s say that a family has a federally adjusted gross income of $20,000. They have a refundable child tax credit. The family has one qualified dependent under the age of six. 

    If the credit amount exceeds the taxpayer’s tax burden, the excess will be refunded.

    Summary

    Raising children is an expensive process.

    2021 child tax credit, which is worth up to $3,600 for each child under the age of six and $3,000 for each child ages between six and seventeen, helps cover the expenses associated with raising children. Half of the credit can be obtained through regular payments in 2021, and the other half can be obtained through filing a 2021 tax return in 2022.

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    FAQS on Child Tax Credit

    How Much Child Tax Credit Can You Get?

    The credit for children for American taxpayers for 2021 taxes was $3,000 (for children under 18) or $3,600 (for children under 6). It was fully refundable and could be acquired as monthly advance payments. For 2022, the credit amount is up to $2,000 per qualifying child, $1,500 of which can be refundable.

    Does Everyone Get the Child Tax Credit?

    The Child Tax Credit is only available to one household per child per tax year. Child Tax Credit can be claimed without any income to report. You must, however, file a tax return in order to receive it.

    What Is the Difference Between the Earned Income Tax Credit and Child Tax Credit?

    Whether you are an employee or self-employed, Earned Income Tax Credit (EITC) is paid to those who work and are on a modest taxable income. To receive EITC, you do not need to be a parent. The CTC, or child tax credit, is a payment made to parents.

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