Child Tax Credit
- 26 Apr 2022
- 4 minutes read
You will likely qualify for the Child Tax Credit if you have children or other dependents under 17. The federal government announced the Child Tax Credit to assist American taxpayers with dependent children experiencing financial difficulties.
The American Rescue Plan Act, first introduced in 1997, will extend the plan until early 2021, allowing families to get the necessary funding. When calculating how much you'll get, keep in mind several income thresholds to consider.
In this article, we'll go over the Child Tax Credit, how to claim it, and whether or not you qualify for it.
What is the Child Tax Credit?
It is a refundable tax credit given to all American taxpayers with a qualifying dependent child. Since the late 1990s, the Child Tax Credit has benefited millions of American parents. The credit reduces a taxpayer's tax burden for each eligible dependent child.
Let's look at how the Child Tax Credit will change between 2020 and 2021.
Parents with dependents below age 17 were eligible for a tax credit of up to $2,000 per kid under the 2020 tax law.
In 2021, American taxpayers could be eligible for a $3,000 credit for children under 18 or a $3,600 credit for children under 6. These credits were refundable and paid out in monthly installments.
The federal government did not extend the enhanced credit for 2022 due to a lack of legislative support. As a result, for the tax year 2022, the credit will be restored to $2,000 and partially refundable annually.
Who qualifies for the child tax credit?
In 2021, you can take full advantage of the enhanced credit if your modified adjusted gross income is not more than $75,000 for single filers, $112,500 for heads of household, and $150,000 for married couples filing jointly.
Above specified levels, the credit begins to phase out.
Income exceeds the above limit but is under $400,000 (married filing jointly) or $200,000 (all other filing statuses). Your total credit per child can be reduced by $50 for every $1,000 spent (or a fraction thereof). The first phaseout will not reduce your credit below $2,000 per child.
Income exceeds $400,000 (married filing jointly) or $200,000 (other filing statuses). The phaseout will continue to deduct $50 for every $1,000 spent, and your credit per child will reduce to less than $2,000 per child. There's a possibility of you even getting disqualified from the credit altogether.
The following are some of the other requirements for the child tax credit:
- You must have provided financial assistance for the child for at least half of the preceding year, and the child must have resided with you for at least half of that period.
- The dependent can't file a joint tax return.
- You have to spend more than half of the year in the United States (Alternatively, if filing jointly, one spouse must have lived in the United States for more than half of the year.)
How to File a Claim for a Child Tax Credit and Keep Track of It
Here's everything you need to know about claiming credit. Eligible filers can claim the CTC on Form 1040, line 12a, or Form 1040NR, line 49. To determine how much of the credit you are qualified for, use the Internal Revenue Service's Child Tax Credit and Credit for Other Dependents Worksheet.
If you need to file a return for a year before 2018, you can only claim the credit on Forms 1040, 1040A, or 1040NR.
Eligible recipients who did not get the correct amount or nothing at all can go to the IRS Child Tax Credit Update Portal to double-check their information.
If the portal indicates that money has been distributed but not received, you can submit a trace or inquiry to find funds by mailing or faxing Form 3911 to the appropriate agency.
Depending on the manner of disbursement, there may be a payment delay. The IRS says that it can trace payments:
- The bank says it hasn't received the payment five days after the deposit.
- Four weeks after payment is mailed to a regular address by cheque.
- Six weeks after the payment has been received in the mail, you have a forwarding address on file with the local post office.
- Nine weeks after the payment is in the mail, you have a foreign address.
The agency sends notices regarding delays and updates its frequently asked questions page with information about Child Tax Credit payments.
How much money can you get for each child?
The child tax credit offers the following benefits for the 2021 tax year:
- Up to $3,000 per qualifying dependent child 17 or younger on 2021, December 31
- Up to $3,600 per qualifying dependent child under six on 2021 December 31.
If you took benefit of the advance payments, the IRS would most likely send you half of your credit in monthly installments from July through December 2021.
Those with qualified dependents aged 17 and under might have received up to $250/month per qualifying dependent, while those aged five and under might have received up to $300/ month per qualifying dependent.
It costs a fortune to raise a dependent or a child. However, becoming a parent comes with valuable financial benefits, such as the Child Tax Credit. CTC is available from the IRS to assist parents and guardians in offsetting some of the costs of raising a family. Keep in mind that the information on child tax credits can change from year to year. As a result, it's critical to stay updated on tax rules each year to know what to expect.