Understanding Child Tax Credits

Raising a child is expensive! Between food, clothing, activities, medical expenses and education, money can disappear in a snap. The child tax credit was designed to help families offset this cost. Child tax credits provide major tax relief for many families, but a lot of people do not understand how to qualify for the tax credit. Because this credit can provide a fairly significant tax break for many people, understanding its purpose and design may make your tax season just a little less stressful:

What is the child tax credit?

The child tax credit can be worth up to $1,000 per qualifying child. The credit is designed to reduce your income tax by the maximum amount allowed for each child.

What is a qualifying child?

A qualifying child must be under age 17 at the end of the year you are filing for. You must provide proof of their age (usually their Social Security Number.) In addition, you must have provided more than 50% of the child’s care in order to be eligible. Your child cannot have provided more than half of their own care during the course of the year. Child care credits only apply to U.S. citizens, U.S. Nationals, or resident aliens. The child must be your child, sibling, step-sibling, grandchild, niece/nephew, or a child who you legally adopted. You must be able to claim the child as a dependent on your tax return, which means they must have lived with you for at least 6 months of the year or be permanently disabled.

There are some exceptions to the 6-month rule, including a child who died or was born during the year. No matter when they were born or died, they are considered to have lived with you for the entire year. You can also count special circumstances as time they lived with you, for example military service. In addition, divorced couples have other options and forms to consider.

What are the income requirements?

The amount you’re allowed to claim for the child tax credit phases out at certain income levels. Couples filing jointly must earn less than $110,000 per year to qualify for the full child tax credit. A married filing separately taxpayer must earn less than $55,000 to fully qualify. Single filers must earn less than $75,000. For every $1,000 that your income exceeds the phaseout level, your tax credit is decreased by $50.

Can I get cash for a child tax credit?

No. The child tax credit is non-refundable, which means it cannot reduce your tax liability below zero. However, you may qualify for the Additional Child Tax Credit, which is refundable.

Because tax forms can be confusing and time-consuming, it may be a good idea to consider hiring a professional or using an online service to fill out your taxes. A computer-based program will allow you to fill out your own taxes, but is usually designed to ensure you do not miss any steps.

Child tax credits help reduce your tax liability. Why not see if you’re eligible this year? If your child meets the required standards, you can save money on your taxes.

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