- Child Tax Credit
- Qualifying for the Child Tax Credit
- Determining the Child Tax Credit amount
- Determining the refundable Additional Child Tax Credit amount
- Child Tax Credit changes from prior years
- Claiming the Child Tax Credit on prior year returns
- Child Tax Credit Guide: How Much Are You Eligible For?
- What Is the Child Tax Credit?
- How the American Rescue Plan Expanded the CTC
- Previous Changes to the Child Tax Credit
- Which Dependents Are Eligible for the Child Tax Credit
- Claiming the Child Tax Credit
- Similar Credits for Children and Dependents
- Additional Child Tax Credit (ACTC)
- Child and Dependent Care Tax Credit (CDCTC)
- State credits
- The Takeaway
- Tips for Saving Money on Your Taxes
- Child Tax Credit 2021: How to Qualify, What It Is
- How much you get per child
- How to qualify for the Child Tax Credit
- How to get paid now for the Child Tax Credit
- What it is and how much you can get
- How to qualify for the Child and Dependent Care Tax Credit
- (for taxes due in May 2021)
- (for taxes due in April 2022)
- How to qualify for the Earned Income Tax Credit
Child Tax Credit
Tax reform has caused some changes to the rules for the Child Tax Credit in recent years. Here's how to know whether you qualify for this credit.
The federal tax filing deadline for individuals has been extended to May 17, 2021. Quarterly estimated tax payments are still due on April 15, 2021. For additional questions and the latest information on the tax deadline change, visit our “IRS Announced Federal Tax Filing and Payment Deadline Extension” blog post.
For information on the third coronavirus relief package, please visit our “American Rescue Plan: What Does it Mean for You and a Third Stimulus Check” blog post.
Thanks to the tax law changes in the Tax Cuts and Jobs Act of 2017, the Child Tax Credit (CTC) is now worth up to $2,000 per qualifying child. A tax credit is a powerful tool, because it reduces the amount of tax you owe by one dollar for each dollar of a tax credit. This is different from a tax deduction, which only lowers your taxable income by one dollar for each dollar of deduction.
However, the Child Tax Credit can be limited if your adjusted gross income exceeds a specific amount your filing status.
The Child Tax Credit isn't refundable, but you may be able to get a refund using the Additional Child Tax Credit (ACTC) if you end up owing less tax than the Child Tax Credit you qualify for.
You can claim these credits when filing your tax return. Here are the details of how they work.
Qualifying for the Child Tax Credit
To qualify for the Child Tax Credit, you have to include the name and Social Security Number for each dependent you're claiming the tax credit for. You and any joint filers must also include your taxpayer identification numbers on your tax return.
Additionally, the child must:
- Be your daughter, son, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or their descendant.
- Be under age 17 at the end of the tax year.
- Not provide more than half of their own financial support during the tax year.
- Must have lived with you for more than half of the tax year (certain exceptions exist).
- Be claimed as a dependent on your tax return.
- Not file a joint tax return for the year (except when only filing to claim a refund of withheld income taxes or estimated taxes paid).
- Be a U.S. citizen, U.S. national, or U.S. resident alien.
- Have a Social Security Number issued by the Social Security Administration that is valid for employment.
If you file using TurboTax, you will be asked simple questions to determine if you meet the requirements to qualify for this tax credit when completing your tax return.
Determining the Child Tax Credit amount
Calculating the amount of the Child Tax Credit requires a few key numbers. Take the number of children that qualify for the tax credit and multiply this by $2,000 to calculate the total potential credit.
The potential Child Tax Credit amount will be reduced if your adjusted gross income exceeds $400,000 for people who are married and filing jointly, or $200,000 for all other tax filing statuses. For each $1,000 your adjusted gross income exceeds the limit (rounded up to the nearest $1,000), the total potential Child Tax Credit amount is reduced by $50 until it is completely exhausted.
Any remaining Child Tax Credit amount calculated above will be further reduced if your federal income tax is less than the potential Child Tax Credit amount.
If your tax exceeds your potential Child Tax Credit amount, you can claim the full credit. If not, the credit is limited to the amount of your tax.
Even so, you may qualify to have part of the excess credit refunded through the Additional Child Tax Credit using Form 8812.
Determining the refundable Additional Child Tax Credit amount
If you aren't able to take the entire Child Tax Credit because you don't have enough tax to offset, the Additional Child Tax Credit may help. This credit is refundable for the unused amount of your Child Tax Credit up to $1,400 per qualifying child, depending on your situation.
The credit is calculated by taking 15% of your earned income above $2,500. You get to claim the lesser of this calculated amount or your unused Child Tax Credit amount, up to $1,400 per qualifying child.
In rare cases, if you have three or more qualifying children, certain filers may be able to get a refundable credit even without meeting the traditional earned income requirements.
The calculation for the credit using this method works by calculating the net Social Security and Medicare taxes you paid minus the earned income credit you claimed.
If this number is greater than the standard calculation using the earned income method, you claim the credit using this calculation. If not, you use the number that results from taking 15% of your earned income above $2,500.
The Consolidated Appropriations Act (CAA) was signed into law on December 27, 2020 as a stimulus measure to provide relief to those affected by the pandemic. For tax year 2020, The CAA allows taxpayers to use their 2019 earned income if it was higher than their 2020 earned income in calculating the Additional Child Tax Credit (ACTC) as well as the Earned Income Tax Credit (EITC).
If you file using TurboTax, the program runs the numbers for you and picks the option that results in the largest tax credit.
Child Tax Credit changes from prior years
The Child Tax Credit has not had any changes for 2020 compared with 2019. However, the Child Tax Credit changed dramatically when the Tax Cuts and Jobs Act of 2017 was enacted. Starting in tax year 2018, the Child Tax Credit increased from $1,000 per qualifying child to $2,000 per qualifying child and the income limits for qualifying for the credit were raised significantly.
Claiming the Child Tax Credit on prior year returns
If you were eligible to claim the Child Tax Credit on prior year returns but did not do so, you can still claim it in certain cases.
You claim this credit on prior year returns by filing an amended tax return.
In most cases, you're allowed to file amended tax returns for three years following the date you filed your original return or two years from the date you paid the tax, whichever is later.
Remember, with TurboTax, we’ll ask you simple questions about your life and upload your answers into all the right tax forms. Get your maximum refund, guaranteed.
Child Tax Credit Guide: How Much Are You Eligible For?
If you have children or other dependents under the age of 17, you ly qualify for the Child Tax Credit. It’s been increased as part of the American Rescue Plan, which was signed by President Biden in March 2021 as part of a U.S.
government effort to help families deal with the financial hardships stemming from the pandemic. Here’s what you should know about this federal program.
Since planning your family’s finances goes beyond just taxes find a local financial advisor today.
What Is the Child Tax Credit?
The Child Tax Credit (CTC) is designed to give an income boost to the parents or guardians of children and other dependents. It only applies to dependents who are younger than 17 as of the last day of the tax year.
The credit is worth up to $2,000 per dependent for tax year 2020, but your income level determines exactly how much you can get. Previously, you needed at least $2,500 to qualify for the CTC. Then it phased out for income above $200,000 for single filers and $400,000 for joint filers.
If your earned income was above the applicable threshold, you were entitled to a partial credit.
The CTC has been refundable up to $1,400. That means if you qualify for the CTC and it brings your tax liability (how much you owe) below zero, the IRS would send you the remaining amount of the credit, up to $1,400.
As a reminder, tax credits directly reduce the amount you owe the IRS. So, if your tax bill is $3,000 but you’re eligible for $1,000 in tax credits, your bill is now $2,000. This differs from a tax deduction, which reduces how much of your income is subject to income tax.
How the American Rescue Plan Expanded the CTC
The American Rescue Plan includes a number of measures aimed at easing economic pressure on American families.
In addition to a third round of stimulus checks sent directly to millions of taxpayers, the plan also temporarily expands the CTC from $2,000 per child to as high as $3,600 for the 2021 tax year.
Half of the credit amount will be paid in advance in installments, and the other half will be claimed by families on their tax returns next year.
Also, the American Rescue Plan makes the CTC fully refundable for the 2021 tax year, not just refundable up to $1,400.
This increased payment is phased out for wealthier families. The tax break begins to phase out at $75,000 for single returns, $112,500 on head of household returns, and $150,000 on joint returns.
Essentially, the increased payment goes down by $50 for every $1,000 earned above the limit.
The previous credit of $2,000 per child is still available subject to an upper income limit of $400,000 for married couples and $200,000 for individuals.
Normally, families must have taxable earnings of at least $2,500, but the plan temporarily eliminates that requirement. Families eligible for this credit will get payments of $300 per month per child starting in July until the end of the year.
Previous Changes to the Child Tax Credit
The Tax Cuts and Jobs Act of 2017 brought some big changes to the U.S. tax code. These changes went into effect for the 2018 tax year and applied to 2020 taxes. This new tax plan included the following changes to the CTC:
- The credit amount (per child) increased from $1,000 to $2,000.
- The CTC is refundable up to $1,400. It previously was not refundable.
- Children must have a Social Security number to qualify.
- The earned income threshold to qualify for the CTC is $2,500.
- The CTC phases out at an income level of $200,000 for single filers and $400,000 for joint filers. In 2017 the phase-out level was $75,000 for single filers and $110,000 for joint filers.
- There is now a $500 (non-refundable) credit available for each dependent older than 17.
Another big change was that the new tax plan largely combined the Additional Child Care Tax Credit (ACTC) with the CTC. This is part of the reason the CTC became refundable and its limits increased.
The American Rescue Plan, passed to help relieve the pressure from the COVID-19 economic crisis, expanded the CTC, making it worth $3,600 for children under 6 and $3,000 for children ages 6 to 17. It also removed the income floor and made the credit fully refundable — and allowed for up to half of the credit to be available as a refund in advance, during the second half of 2021.
Which Dependents Are Eligible for the Child Tax Credit
Eligibility for the CTC hinges on a few factors. The child you claim as your dependent has to meet six IRS tests:
- Age Test: The child was under age 17 (so 16 or younger) at the end of the tax year.
- Relationship Test: The child is your daughter, son, stepchild, foster child, adopted child, brother, sister, stepbrother, stepsister, half sister or half brother. The child can also be the direct descendant of any of those just mentioned (e.g. your grandchild, niece or nephew).
- Support Test: The child did not provide more than half of their own “support.” This is money they use for living expenses. The child also cannot file a joint return that year.
- Dependent Test: The child must be claimed as your dependent on your federal tax return.
- Citizen and Resident Test: The child must be a U.S. citizen, a U.S. national or a U.S. resident alien. Starting with the 2018 tax year, the child must also have a Social Security number.
- Residency Test: The child must have lived with you for more than half of the tax year.
Claiming the Child Tax Credit
Here’s what you need to know about claiming your credit. Eligible filers can claim the CTC on Form 1040, line 12a, or on Form 1040NR, line 49.
To help you determine exactly how much of the credit you qualify for, you can use the Child Tax Credit and Credit for Other Dependents Worksheet provided by the Internal Revenue Service.
If you need to file a return for a year before 2018, you can only claim the credit on Forms 1040, 1040A or 1040NR.
Similar Credits for Children and Dependents
There are several other federal and some state provisions that help families caring for children and other dependents.
Additional Child Tax Credit (ACTC)
This credit effectively gave you a refund if the CTC reduced your tax bill to less than zero. (Remember that the CTC was previously not refundable.) The ACTC is largely phased out, but if you need to file a return for a tax year previous to 2018, you can find information for the ACTC on the Form 1040.
Starting with the 2018 tax year, there is an additional $500 Credit for Other Dependents (ODC). This allows you to claim non-child dependents, such as a parent, and dependents who are college students (under age 24). The eligibility requirements are very similar but you cannot claim the ODC for a dependent who qualifies for the CTC.
Child and Dependent Care Tax Credit (CDCTC)
You can claim this credit if you have earned income and if you’re paying someone else to care for a dependent. Un the CTC, which you can only claim if you’re the parent or guardian of minor children, you can claim the CDCTC for aging parents and other disabled relatives. Qualifying dependents for the CDCTC include the following:
- Children who are 12 or younger at the end of the tax year
- Dependent adult family members or spouses who are not able to care for themselves due to mental or physical impairments, unless they had gross income of $4,150 ormore
With the CDCTC, you can claim a credit for up to 35% of qualified care expenses. The exact percentage that you are eligible to deduct depends on your income level. The maximum amount of care expenses to which you can apply the credit is $3,000 if you have one dependent and $6,000 if you have more than one dependent.
That means the largest possible credit is $1,050 with one dependent and $2,100 with multiple. The CDCTC is non-refundable. According to the IRS, expenses that qualify for the CDCTC include money that you paid “for household services and care of the qualifying person while you worked or looked for work.” Child support payments do not qualify.
To claim the CDCTC, you need to fill out Form 2441.
Some states offer a complementary state-level CTC and/or CDCTC that matches part or all of the federal credit. In some states, the credits are refundable and in other states they are not. This state-by-state guide breaks down which states offer their own Earned Income Tax Credit, CTC or CDCTC.
The IRS offers child tax credits to help parents and guardians offset some of the costs of raising a family. If you have a dependent who isn’t your direct child, you may also be eligible to claim a credit. And because some child tax credits are refundable, you might even make some money when all is said and done.
For further help reducing your tax bill, consider working with a financial advisor who specializes in taxes. Our financial advisor matching tool can help you find a professional to work with to meet your needs. Just answer some questions about your location, your financial situation and your goals, and you’ll be matched with up to three advisors in your area.
You can then interview them on the phone or in person and choose who to work with.
Tips for Saving Money on Your Taxes
- A financial advisor can help you optimize your tax strategy for your family’s needs. SmartAsset’s free tool connects you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors, get started now.
- To make sure you don’t miss a credit or deduction that you qualify for, use a good tax software. SmartAsset evaluated common tax filing services to find the best online tax software for your specific situation.
- Some savings options, a health savings account (HSA), dependent care or health care flexible spending account (FSA) or 401(k), allow you to contribute pre-tax money. With a dependent care FSA, that means you are not paying taxes on contributions that you then spend on dependent care. This decreases your taxable income and could potentially drop you into a lower tax bracket. Even if your contributions didn’t change your bracket in the past, make sure to check the current tax brackets. They may have changed since you last filed, so contributing slightly more might now help you to really boost your savings.
Photo credit: ©iStock.com/Christopher Futcher, ©iStock.com/gruizza, ©iStock.com/DragonImages
Child Tax Credit 2021: How to Qualify, What It Is
The Child Tax Credit is a refundable tax credit of up to $3,600 per qualifying child under 18. The credit begins to phase out when adjusted gross income reaches $75,000 for single filers, $150,000 for joint filers and $112,500 for head of household filers.
The Child Tax Credit is one of several kid-focused federal tax credits that are among the most effective ways to reduce your tax bill.
How much you get per child
In 2021, the Child Tax Credit offers up to $3,000 per qualifying dependent child 17 or younger on December 31, 2021. The credit increases to $3,600 if the child is under 6 on December 31, 2021.
This is a tax credit, which means it reduces your tax bill on a dollar-for-dollar basis. The Child Tax Credit is also refundable; that is, it can reduce your tax bill to zero and you might be able to get a tax refund check for anything left over.
» MORE: See who qualifies as a tax dependent
How to qualify for the Child Tax Credit
For the 2020 tax year: $400,000 for married filing jointly, and $200,000 for everybody else.
For the 2021 tax year: $75,000 for single filers, $150,000 for married filing jointly and $112,500 for head of household filers.
For the 2020 tax year, there are special rules due to coronavirus: You can use either your 2019 income or your 2020 income to calculate your tax credit, and you can use whichever number gets you the bigger tax credit. (This is also the case for the Earned Income Tax Credit.) Be sure to ask your tax preparer to run the numbers both ways.
Some of the other child-related eligibility requirements for the Child Tax Credit include:
You must have provided at least half of the child’s support during the last year, and the child must have lived with you for at least half the year (there are some exceptions to this rule; the IRS has the details here).
The child cannot file a joint tax return (or file it only to claim a refund).
To take the Child Tax Credit for the 2020 tax year, the child has to be 16 or younger on December 31, 2020. To take the Child Tax Credit for the 2021 tax year, the child has to be 17 or younger on December 31, 2021.
Most tax software will lead you through the process and calculate the credits for you.
How to get paid now for the Child Tax Credit
The American Rescue Plan Act of 2021 allows parents to get monthly checks in 2021 as an advance payment on their 2021 Child Tax Credit. Here are the basics of how that works:
You can either claim 100% of your 2021 Child Tax Credit on your taxes when you do your 2021 taxes (that's the tax return due in April of 2022), or you can get 50% of that money now in cash and claim the other 50% on your taxes later.
Under the cash payment program, you get six monthly payments from the U.S. Treasury via direct deposit starting in July and running through December of 2021. For example, if you qualify for a $3,000 Child Tax Credit, you could get six $250 payments between July and December (for a total of $1,500) and then claim the remaining $1,500 on your taxes.
The IRS will use your most recent tax return to determine whether you qualify for the Child Tax Credit and to see how old the kids will be so it knows how much to send you each month.
If you'd rather claim 100% of your Child Tax Credit at the end of the year, you can opt the periodic payment program. The U.S. Treasury is setting up an online portal to do that.
The online portal will also be the place to tell the IRS about things that would affect the amount of your payment, such as a change in the number of kids, marital status or income.
If it turns out that you were overpaid or underpaid during the year, you may need to true that up on your tax return at the end of the year.
What it is and how much you can get
For the 2020 tax year, the Child and Dependent Care Credit can get you 20% to 35% of up to $3,000 of child care and similar costs for a child under 13, an incapacitated spouse or parent, or another dependent so that you can work (and up to $6,000 of expenses for two or more dependents).
For the 2021 tax year, the Child and Dependent Care Credit can get you up to 50% of up to $8,000 of child care and similar costs for a child under 13, a spouse or parent who cannot care for themselves, or another dependent so that you can work (and up to $16,000 of expenses for two or more dependents).
The percentage of allowable expenses decreases for higher-income earners — and therefore the value of the credit also decreases.
For the 2020 tax year, this credit is not refundable, which means it can reduce your tax bill to zero but you won't get a refund on anything left over from the credit. For the 2021 tax year, however, the credit is refundable.
Some states also offer their own versions of this credit for child care and dependent care. They are often simply a percentage of the federal credit, but your state could expand eligibility, adjust the income thresholds or provide other incentives.
How to qualify for the Child and Dependent Care Tax Credit
A dependent child must be 12 or younger at the time the child care is provided.
Spouses and other dependents don’t have an age requirement, but IRS rules say they must have been physically or mentally incapable of self-care and must have lived with you for more than half the year.
If you’re married, you must file as married filing jointly.
You must have earned income — money you earned from a job. Investment or dividend income doesn’t count.
You must provide the care provider’s name, address and Taxpayer Identification Number — either a Social Security number or an Employer Identification Number.
You can’t claim the credit for payments to care providers who are:
A parent of the dependent child
A dependent listed on your tax return
Your child who is age 18 or younger, even if they’re not listed as a dependent on your return
Keep in mind that qualifying expenses can go beyond physical care and extend to household expenses such as paying someone to help with cooking and cleaning.
(for taxes due in May 2021)
(for taxes due in April 2022)
How to qualify for the Earned Income Tax Credit
You have to file a tax return to get this credit, even if you don’t owe tax and are not legally obligated to file a return.
This tax credit is refundable. So, if you’re due to receive a credit of $5,000 but you owe only $2,000 in taxes, you might get a check for $3,000.
For the 2020 tax year, there are special rules due to coronavirus: You can use either your 2019 income or your 2020 income to calculate your tax credit, and you can use whichever number gets you the bigger tax credit. Be sure to ask your tax preparer to run the numbers both ways.
A number of states offer some version of an earned income tax credit for working families, so you might be able to get that credit, too.
Most tax software will lead you through the process and calculate the credits for you.
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