How Does the Child Tax Credit Work?

The Child Tax Credit is one of the most significant tax breaks for families with children in the United States.

How Does the Child Tax Credit Work

It is a tax credit that allows parents or guardians to reduce their federal income tax bill by up to $2,000 for each qualifying child under the age of 17.

The credit is refundable, which means that if the credit exceeds the amount of federal income tax owed, the parent or guardian can receive up to $1,400 per child as a refund.

In this article, we will explore how the Child Tax Credit works and how to qualify for and claim it.

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Qualification for the Child Tax Credit

To qualify for and claim the Child Tax Credit, the parent or guardian must meet certain criteria. The first requirement is that the child must be under the age of 17 at the end of the tax year.

Additionally, the child must be the taxpayer's dependent, meaning that the child must live with the taxpayer for more than half of the year.

The taxpayer must also provide more than half of the child's support for the year. Finally, the taxpayer must have a valid Social Security number or an Individual Taxpayer Identification Number (ITIN) for the child.

How Much Is the Child Tax Credit Worth?

The Child Tax Credit is worth up to $2,000 per qualifying child. However, the amount of the credit is phased out for taxpayers with higher incomes.

For married taxpayers filing jointly, the phase-out begins at $400,000 of adjusted gross income (AGI). For all other taxpayers, the phase-out begins at $200,000 of AGI. The credit is reduced by $50 for every $1,000 of AGI above the phase-out threshold.

The Child Tax Credit is also partially refundable. If the credit exceeds the amount of federal income tax owed, the parent or guardian can receive up to $1,400 per child as a refund. This is known as the Additional Child Tax Credit.

How to Claim the Child Tax Credit

To claim the Child Tax Credit, the parent or guardian must file Form 1040 or Form 1040-SR and attach Schedule 8812, Child Tax Credit.

The form requires the parent or guardian to provide the name, age, and Social Security number or ITIN of each qualifying child. The parent or guardian must also provide the amount of time each child lived with them during the tax year.

How the Child Tax Credit Differs from the Child and Dependent Care Credit

The Child Tax Credit is often confused with the Child and Dependent Care Credit. While both credits are designed to help families with children, they are different.

The Child and Dependent Care Credit is a non-refundable tax credit that helps parents or guardians pay for child care expenses.

The credit is based on a percentage of the amount of child care expenses paid, up to a maximum of $3,000 for one child or $6,000 for two or more children.

The percentage of the credit ranges from 20% to 35% of the child care expenses, depending on the taxpayer's income.

The Child Tax Credit provides up to $2,000 per qualifying child

The Child Tax Credit is a valuable tax break for families with children. It provides up to $2,000 per qualifying child and is partially refundable.

To qualify, the child must be under the age of 17 and meet certain other criteria. To claim the credit, the parent or guardian must file Form 1040 or Form 1040-SR.

It is important to note that the Child Tax Credit is different from the Child and Dependent Care Credit, which is a non-refundable tax credit that helps parents or guardians pay for child care expenses.

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