For parents and guardians of dependent children, the Internal Revenue Service (IRS) provides a child tax credit that can help reduce your tax liability for the 2023, 2024 tax season.
The Child Tax Credit is designed to help with the high costs of childcare and the rising number of children in poverty in the United States.
This tax credit has helped millions of families every year and has been extended by the IRS.
For 2023 and 2024, the maximum amount of the Child Tax Credit is $2,000 per qualifying child. However, it’s important to note that the full credit amounts are based on filing status and income level.
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Who Qualifies for the Child Tax Credit
Eligible families can claim a Child Tax Credit of up to $2,000 per qualifying child. Like most tax credits, the Child Tax Credit has a phaseout at certain income levels.
For an individual to be eligible for the Child Tax Credit, the following tests must be met to qualify:
Age Test: The child you claim must be under the age of 17 on the last day of the tax year (December 31).
Relationship Test: The child you claim must be your own child, stepchild, or foster child. The relationship test allows individuals to claim a brother/sister, stepbrother/stepsister, nieces, nephews, and grandchildren as long as all other qualifications are met.
Support Test: The child must not have provided over half of his/her own financial support for the tax year.
Dependent Test: The child must be claimed as a dependent on your tax return. You can claim a dependent on the first page of the tax return – you will need to enter their full name, social security number, and relationship to claim a dependent.
Citizenship Test: The child must be a U.S. Citizen, U.S. national, or U.S. resident alien.
Residence Test: The child must have lived with you for more than half of the tax year you claim the credit. Some exceptions exist if you or the child had temporary absences due to school, medical care, military service, etc.
Income Limitations: The child tax credit begins to phase out for taxpayers with modified adjusted gross income (MAGI) of over $400,000 or $200,000, depending on your filing status.
Child Tax Credit Phase-Out Income Limits
The Child Tax Credit phaseout is a provision in the U.S. tax code that reduces or eliminates the Child Tax Credit for higher-income taxpayers.
The phaseout occurs when a taxpayer’s modified adjusted gross income (MAGI) exceeds certain income thresholds.
For the tax year 2023, the phaseout thresholds are as follows:
- For married couples filing jointly: The Child Tax Credit begins to phase out when their MAGI exceeds $400,000.
- For taxpayers filing as head of household: The phaseout starts when their MAGI exceeds $200,000.
- For all other taxpayers: The phaseout begins when their MAGI exceeds $200,000.
The maximum income threshold above which no credit is claimable is $440,000 for joint returns and $240,000 for individual and other filing statuses.
It’s important to note that tax laws can change, and the phaseout thresholds and rates may be adjusted in subsequent tax years.
Child Tax Credit Worksheet and Instructions
Here’s an outline of what the Child Tax Credit Worksheet and Instructions include:
Determine Eligibility: The instructions will first help you determine if you are eligible to claim the Child Tax Credit. It typically involves considering the age, relationship, residency status, and other qualifications of the child.
Calculate the Credit: The worksheet will guide you through calculating the amount of the Child Tax Credit you are eligible for based on your filing status, adjusted gross income, and the number of qualifying children you have.
Phaseout Rules: The instructions may also explain any phaseout rules that reduce or eliminate the credit for higher-income taxpayers.
Additional Child Tax Credit: If your Child Tax Credit is more than the taxes you owe, the instructions may provide guidance on whether you can claim the Additional Child Tax Credit for the excess amount.
Documentation: The worksheet may also include information on the documentation you need to support your claim for the Child Tax Credit, such as Social Security numbers for qualifying children.
Remember that it’s crucial to use the correct and most up-to-date version of the Child Tax Credit Worksheet and Instructions, as tax laws can change, and using outdated forms or instructions may lead to errors in your tax return.
When you file your taxes online, the worksheet will be provided and filled out correctly for you.
What is the Additional Child Tax Credit?
The Additional Child Tax Credit (ACTC) is a refundable tax credit available to eligible taxpayers in the United States who have claimed the Child Tax Credit (CTC) and have a remaining amount of the CTC after it reduces their tax liability to zero.
In other words, if the CTC exceeds the amount of taxes owed, taxpayers may be eligible to receive the remaining portion as a refund through the Additional Child Tax Credit.
The Additional Child Tax Credit is designed to provide financial support to low and moderate-income families with qualifying children. It can help taxpayers who may have little or no tax liability to still receive some benefit from the Child Tax Credit.
To qualify for the Additional Child Tax Credit, you must meet the following criteria:
- You have a qualifying child for the Child Tax Credit.
- You have earned income during the tax year. Earned income includes wages, salaries, and self-employment income, but it does not include certain unearned income sources like interest, dividends, and capital gains.
- You have three or more qualifying children, and your earned income is higher than a specified threshold (the ACTC phaseout threshold).
The specific rules and calculations for the Additional Child Tax Credit can be complex and may change each tax year.
How to Claim the Child Tax Credit
To claim the Child Tax Credit in the United States, you need to follow the instructions provided by the Internal Revenue Service (IRS) when filing your federal income tax return.
Here are the general steps to claim the Child Tax Credit:
Determine Eligibility: Make sure you meet all the eligibility requirements for claiming the Child Tax Credit. The main eligibility criteria include having a qualifying child who meets certain age, relationship, and residency requirements.
Obtain a Social Security Number (SSN) for the Child: To claim the credit, your child must have a valid SSN. If you have a qualifying child without an SSN, you won’t be able to claim the Child Tax Credit for that child.
Start a Tax Return: To claim the Child Tax Credit, you must file a federal income tax return. You can typically claim the credit using Form 1040, Form 1040A, or Form 1040NR, depending on your individual tax situation.
Complete the Child Tax Credit Worksheet: If you have a qualifying child, follow the instructions provided in the tax form’s instructions (e.g., Form 1040 instructions) to complete the Child Tax Credit Worksheet. This worksheet helps you calculate the credit amount you can claim based on your filing status, income, and the number of qualifying children.
Fill Out the Child Tax Credit Section: On your tax return form, enter the amount you calculated on the Child Tax Credit Worksheet in the appropriate section. This credit will directly reduce your tax liability, potentially leading to a refund if the credit exceeds the taxes you owe.
Understand the Phaseout Rules: Be aware of the phaseout rules for the Child Tax Credit. If your income exceeds certain thresholds, the credit amount may be reduced or eliminated. The phaseout limits can change each year, so refer to the latest IRS guidance for the specific tax year you are filing.
Consider the Additional Child Tax Credit: If your Child Tax Credit is more than the taxes you owe, you may be eligible for the Additional Child Tax Credit. This refundable credit allows you to receive a portion of the excess credit amount as a refund, even if you have no tax liability.
File Your Tax Return: After completing all the necessary sections, file your tax return by the deadline, which is typically April 15th. If you need more time to file, you can request an extension.
The child tax credit for qualified dependents is one of the best tax benefits available. In addition, claiming the child tax credit can open the door to a larger tax refund!
Online tax software will calculate the credit, provide the forms, and fill them out for you so you don’t have to worry about all the details.