What is the Child Tax Credit and how does it affect tax filing?
The Child Tax Credit helps families cover some of the cost of raising a child, lowering families tax burden or even putting some money in your pocket.
Raising a family can be expensive so the US government gives American families a chance to reduce their tax burden through different tax provisions. The child tax credit is one that families can claim for each of their children when they file a tax return.
Congress is currently working on expanding this credit to be fully refundable and reach lower-income families for the 2021 calendar year. In its current form eligible families can claim a $2,000 credit, $1,400 of which is fully refundable for children under the age of 17. For families with older dependents there is also a non-refundable $500 credit.
The Child Tax Credit
The current Child Tax Credit is worth up to $2,000 per qualifying child and $500 per qualifying dependent. The credit begins to phase out when adjusted gross income reaches $200,000 for single filers and $400,000 for married couples filing jointly. But there is also an income floor of $2,500 in minimum income.
The refundable amount is equal to 15% of your earned income over $2,500, up to the maximum $1,400 refundable credit, so if you owe less tax than the credit you will receive the remainder of the credit as part of your refund. However, the $500 per qualifying dependent is not refundable, so it only reduces your tax burden and is not added to your refund.
Eligibility to claim the Child Tax Credit
- under 17 on 31 December
- be a U.S. citizen, resident, or national, and
- have a Social Security number which you must provide on your tax return.
- live with you for over half the year
- provide less than half of his or her own support
A qualifying child can be any of the following: your son, daughter, stepchild, adopted child, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them—for example, your grandchild, niece, or nephew.
The IRS has an online questionnaire you can complete to determine if you have a qualifying child. Visit the Is My Child a Qualifying Child for the Child Tax Credit? page at the IRS website.
- A child ages 17–18
- or 19–24 and in school full time in at least five months of the year.
- Also included are older dependents
The IRS has an online questionnaire you can complete to determine if you have a qualifying dependent. Visit the Whom May I Claim as a Dependent? page at the IRS website.
When filing you taxes you can use a number of Free File programs through the IRS with tax preparers. Most of these tax software systems will lead you through the process and calculate the credits for you.