Child Tax Credit

Child Tax Credit Rules:
What You Need To Know

WHAT DO I NEED TO KNOW?

How To Qualify For The Child Tax Credit

Eligibility Requirements

To qualify for the Child Tax Credit, taxpayers must meet certain eligibility requirements.

These requirements include:

Valid Social Security Number (SSN) for the individual and their qualifying child.
U.S. citizen or resident alien status for the entire tax year.
Having a qualifying child under the age of 16 at the end of the tax year.

Additionally, the child must live with the taxpayer for more than half of the tax year, not provide more than half of their own support & not be claimed as a dependent by another taxpayer.

How to Prove Eligibility

To prove eligibility for the Child Tax Credit, taxpayers must provide documentation such as the child’s birth certificate or adoption papers, as well as a valid SSN for the child.

Taxpayers may also need to provide proof of citizenship or residency, as well as proof of the child’s relationship to the taxpayer and proof of the child’s residence.

How to Claim the Credit

Claiming the Child Tax Credit on a tax return is a straightforward process.

Taxpayers should indicate on their tax return that they have a qualifying child and provide the necessary information, such as the child’s name, SSN and relationship to the taxpayer.

Taxpayers should also provide information on their income, as the credit amount may be reduced or phased out for higher-income taxpayers.

It’s important to note that the credit is non-refundable, which means that it can reduce the taxpayer’s tax liability to zero but cannot result in a refund.

Child Tax Credit Amount (How Much Refund Per Child)

A. How the Credit Amount is Calculated

The Child Tax Credit amount is based on a variety of factors, including the number of qualifying children, the taxpayer’s income, and the amount of taxes owed.

The credit amount is generally calculated at a rate of $2,000 per qualifying child, but it may be reduced or phased out for higher-income taxpayers.

The credit begins phasing in when earned income exceeds $2,500 and phasing out when income exceeds $400,000 for joint filers or $200,000 for all others. Up to $1,600 of the credit is refundable in 2023, and the refundable portion is called the Additional Child Tax Credit (ACTC).

The maximum credit amount per child is $2,000 and the credit starts to phase out for single filers with an adjusted gross income (AGI) over $75,000 and for married filers with AGI over $150,000. Depending on earned income and income levels some taxpayers may qualify for the full child tax credit while others will receive a partial credit.

B. Maximum Credit

The maximum credit amount per child is $2,000 for the 2023 tax year, which means that taxpayers can claim a credit of up to $2,000 for each qualifying child.

However, the amount of the credit may be reduced or phased out for taxpayers with higher incomes. The refundable portion of the child tax credit was $1,540 during the pandemic in tax year 2021.

The American Rescue Plan Act expanded the child tax credit to $3,000 for children ages 6-17 and $3,600 for children under 6, this additional child tax credit was only available for 2021.

C. How to Maximize the Credit

To maximize the Child Tax Credit, taxpayers should ensure they meet all of the eligibility requirements, provide all necessary documentation to prove their eligibility and make sure to claim the credit on their tax return.

Unlike 2021 taxpayers will need to have earned income in 2023 to claim child tax credit for the tax year.

Additionally, taxpayers should consider strategies such as timing income or making charitable donations to lower their taxable income and increase their credit amount. It is also important to consult a tax professional to ensure that you are maximizing your credit and staying compliant with tax laws.

Child Tax Credit Payments (Monthly Payments)

The Child Tax Credit in 2021 allowed eligible taxpayers to receive monthly payments for a portion of the credit amount.

These payments, known as the “Advance Child Tax Credit,” were designed to assist taxpayers who may have difficulty paying their taxes in one lump sum. To request monthly payments, taxpayers were required to indicate on their tax return that they wish to receive the Advance Child Tax Credit.

The monthly payment amount was calculated based on the taxpayer’s estimated credit amount and was typically sent to the taxpayer on a regular basis, such as monthly or twice per month.

To receive these monthly payments, the taxpayer had to have a valid social security number for themselves and their qualifying child and must file their tax return before the deadline. Follwing the pandemic there are no longer any monthly CTC payments.

Note that the advance payments in 2021 would stop if the taxpayer no longer qualified for the credit or if they didn’t file their tax return on time.

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