If you want to lower your tax bill next April, you may want to consider looking into the child tax credit, or CTC. This program offers qualifying taxpayers a chance to cut down their tax bill by as much as $2,000 per eligible child.
“Everyone who is eligible should consider and take the child tax credit,” Phyllis Jo Kubey, an enrollment agent and certified financial planner, told US News My Money in an email. “Generally, if you have a qualifying child who was under age 17, who has a Social Security number, you’re eligible.”
The CTC is an excellent way for families to save more, especially during the pandemic. US News My Money explains what you should know so you can claim this benefit for yourself.
How Much Can You Receive From The Child Tax Credit?
Based on income earned in 2020, the CTC will lower your tax bill by up to $2,000 per child. If you qualify and have two eligible children, for example, you could receive a tax credit up to $4,000.
To understand the extent of this program, it’s important that you know what tax credits are, Kubey notes. These differ from tax deductions, which reduce your tax liability by lowering your income.
On the other hand, a credit offers a dollar-for-dollar reduction on what you owe. In some cases, CTC benefits could completely cover your tax bill, with up to $1,400 for each child. According to Kubey, the refundable aspect is referred to as the additional child tax credit (ACTC).
The federal government also offers similar nonrefundable credit of $500 for individuals who are ineligible to receive the CTC, such as those who have dependents 17 and older enrolled in college.
Who Qualifies For The Child Tax Credit?
To qualify for the $2,000 tax credit, you must have qualifying children and an annual income less than $200,000. If you are a single filer who earns more than $200,000 or a married couple earning $400,000 who file jointly, that amount gradually declines.
It’s important to remember that you must have an eligible child to qualify for the CTC. This dependent could be biological, a stepchild, adopted, a foster child, or a grandchild. If you care for a sibling, half-sibling, niece, or nephew, you could also receive assistance.
Qualifying children must be under 17 by the end of this tax year and have a Social Security number. Additionally, they must live with you a minimum of six months each year and not pay for their care.
In an email to US News My Money, Charles Capetanakis, a certified public accountant and partner at Davidoff Hutcher & Citron, wrote, “It’s tricky because most of us think of 18 as the age below which people are children, but the child tax credit uses 17 as the cutoff. The keys to remember are: each dependent child under 17 at the end of the tax year who are American citizens.”
How To Claim The Child Tax Credit
To receive assistance from this program, you must file a federal tax return. Due to the high level of fraudulent applications, you might also have to prove the legitimacy of your request. According to Kubey, tax preparers must adhere to extra due diligence guidelines when their clients claim this benefit. As a result, your tax refund could take longer to get to you.
You will also need to submit your dependents’ Social Security numbers. You cannot receive a tax credit for a child already claimed by another guardian. So if you co-parent with an ex or someone else, you should work out an arrangement first.
Some tax software programs can help you navigate the qualification process to determine whether you meet the requirements. “If you use commercial tax software and have entered your children’s information correctly, the software should calculate the credit automatically,” Kubey explains.
What If You Forgot To Claim The Child Tax Credit Last Year?
If you believe your family would have qualified for the CTC last year, but you forgot to apply, start by amending the previous three years’ tax returns. Remember, your children must have had Social Security numbers during those years, and you must follow that year’s tax laws.
If you can receive this benefit, it can help you considerably. It may not cover the cost of everything, but it can remove some financial burden.
- Snider, Susannah. “What Is the Child Tax Credit?” U.S. News & World Report, U.S. News & World Report, 30 Nov. 2020, money.usnews.com/money/personal-finance/taxes/articles/what-is-the-child-tax-credit.