How Much is the Child Tax Credit?
Here is a breakdown of everything you need to know about the Child Tax Credit and Additional Child Tax Credit
Table of Contents
- 1 How Much do You Get Back in Taxes for a Child?
- 2 How Does a Child Qualify for the Child Tax Credit?
- 3 Claiming the Child Tax Credit
- 4 What is the Additional Child Tax Credit?
- 5 IRS Child Tax Credit Worksheet
- 6 Try the Child Tax Credit Calculator
- 7 How Much is the Child Tax Credit Phase Out Limit?
- 8 Can I Claim the Child Tax Credit if I File as Married Filing Separately?
- 9 Your Filing Status and the Child Tax Credit
- 10 Why Choose Married Filing Separately?
- 11 What About Dependents on Multiple Returns?
- 12 How to Claim the Child Tax Credit
- 13 What is the New Child Tax Credit Amount After Tax Reform Changes?
- 14 Additional Considerations
- 15 How to File Taxes Online in 3 Simple Steps - TurboTax Tax Tip Video
How Much do You Get Back in Taxes for a Child?
The child tax credit for 2020, 2021, allows you to get back up to $2000 per child in taxes. This is a tax credit, which means it reduces your tax bill dollar-for-dollar, which makes it highly valuable for all families.
To be eligible to claim the child tax credit, your child or dependent must first pass all of the eligibility tests to qualify.
How Does a Child Qualify for the Child Tax Credit?
Here are the qualification requirements for the child tax credit.
- Your child must be claimed using Form 1040.
- The child must be under the age of 17 by the end of the tax year.
- The child can be anyone from a blood relation to a stepchild or adopted child. Direct descendants always qualify.
- Your qualifying child can only be claimed on a single tax return and can’t have provided more than 50% of their total financial support.
- They must have lived with you for at least six months of the year and must be a US citizen/national/resident alien.
- For children born during the tax year, the child must have lived with you for at least half of the remaining tax year.
Claiming the Child Tax Credit
Any parent or legal guardian with a child age 17 or younger at the end of a tax year is eligible to claim the child tax credit. The child must reside with the claiming parent for more than 50-percent of the year. The child also cannot financially support themselves with at least half of their own expenses.
When you prepare your taxes online, you are automatically asked the right questions to determine if you qualify and how much you get back in taxes for a child.
What is the Additional Child Tax Credit?
If the refundable credit you receive from the standard Child Tax Credit is more than your taxes owed, you might receive an Additional Child Tax Credit (provided your income is at least $3,000).
Form 1040 has all the information you need to calculate whether or not this applies to your current family situation.
IRS Child Tax Credit Worksheet
The child tax credit worksheet is a helpful resource provided by the IRS. You can find it through IRS Publication 972. The purpose of the worksheet is to help you calculate how much child tax credit you can claim this coming tax year. You’ll be able to enter information like your income and how many eligible children you have.
You should remember that the child tax credit, is non-refundable. It reduces your tax liability and can do so all the way to $0.
If you have three or more qualifying children, you may be able to take the Additional Child Tax Credit instead. This is handy if you would rather get a refund instead of reducing your total tax liability.
Use the child tax credit worksheet to figure out which option is best for you.
Try the Child Tax Credit Calculator
Thankfully it is simple to calculate both the Child Tax Credit and the Additional Child Tax Credit if you meet the set requirements.
Websites with online tax filing platforms offer a complete service for calculating and claiming the child tax credit. All you need to do is supply basic information, and you will see if you’re eligible for either of these credits.
The dependents credit finder asks simple questions about your dependents and will let you know if you can claim the child tax credit on your tax return and calculate how much you qualify for.
Best of all, you can use these tools for free before you file.
How Much is the Child Tax Credit Phase Out Limit?
You should also keep in mind that the child tax credit begins to phase out at $200,000 for single taxpayers and $400,000 for joint taxpayers.
The child tax credit limit is locked in at $2,000 per child. This has increased substantially under the Tax Cuts and Jobs Act (TCJA), which changed the entire tax system. You need to be aware that the changes state that you can’t get more than $2,000 per child.
However, you need to be aware that many families won’t get $2,000 per qualifying child. Many families will get much less after income, and other restrictions are considered.
Other things could impact how much you get from the child tax credit, such as social security and Medicare payments.
Can I Claim the Child Tax Credit if I File as Married Filing Separately?
Many married couples will get a better deal when filing their taxes when they choose the married filing jointly status. However, there are certain special circumstances where it’s better to use the filing status married and filing separately.
These two filing statuses become a big issue when attempting to claim the child tax credit. When choosing married filing separately, you will see an impact on the amount of child tax credit you can claim.
A married couple filing jointly can claim almost double than what they could get if they’re married and decide to file separately.
Your Filing Status and the Child Tax Credit
If you want to claim the maximum amount in child tax credit, you must choose the married filing jointly tax filing status. There’s no way around it.
For qualifying children, they must be under 16 by the end of the tax year, must be American citizens/nationals/resident aliens. Furthermore, the parent must claim their child as a dependent on their tax return, if the child has lived with them for at least half the year.
This is where there’s a lot of problems with the married filing separately status. Only one parent can claim the child as a dependent on their tax return. The parent not claiming the child only gets half the tax credit amount.
Why Choose Married Filing Separately?
If you’re a taxpayer who stands to gain more when married and filing separately, there are rules to follow. For example, maybe you’ve chosen this filing status because you’re paying back taxes, child support, or other loans.
Another reason why you may decide to file separately is that both you and your spouse have a high income, so by filing separately, you can reduce the tax burden.
Remember that both you and your spouse must choose to use the standard deduction or itemization. The IRS doesn’t allow married couples to choose differently.
What About Dependents on Multiple Returns?
Only one taxpayer or couple can claim the child for the Child Tax Credit and ACTC. If more than one person tries to claim the child, the IRS will determine who gets to claim the child using the tiebreaker rules.
Most parents and legal guardians are aware of the earned income credit (EIC) and child tax credits that they can qualify for to reduce their tax liabilities.
Some do not know that adoption credits can be taken as well as paying out-of-pocket (OOP) for child/dependent care. These deductions can help reduce your tax liability, and in some cases, result in a refund.
Earned Income Credit (EIC) – To qualify for the EIC, you must meet income limitations and have the required number of qualifying children for your income level. The income thresholds can change. An example is the recent earnings year. Families with a single child filing jointly cannot have an adjusted gross income (AGI) more than $46,010. For single/head of household and surviving spouses, the income limit for a single child is $40,320.
Child and Dependent Care Credit – You could deduct up to $3,000 for one dependent or up to $6,000 for more than one with this credit. The percentage of child and dependent care costs that you can claim, as an allowable expense, is 20 to 35-percent based upon your AGI. If you have a single qualifying child, the maximum credit amount is $3,000. For two or more children, the maximum credit is $6,000.
Adoption Tax Credit – If you have already adopted or are in the process, you may qualify for this credit. The method of adopting a child is costly. Some employers assist employees with adoption expenses. This “income” can be deducted and claimed as employer-provided adoption assistance. You can also claim any monies paid to an adoption agency for the adoption of a child that qualifies for the credit.
You cannot receive any excess funds. The maximum credit can change, you should view the yearly guidelines set by the IRS. Extra monies are rolled forward as credits on future tax returns.
Student Loan Interest – Student loan interest can be deducted up to the amount of $2,500 per school/tax year. The modified adjusted gross income constraints to claim this credit require that those filing single do not have more than $80,000 income. For those that are married, the income threshold is $160,000 if you file jointly
Filing Status – If you are unwed and your child resided with you for more than half of the year, you could qualify for a higher standard deduction and lower tax rates with the Head of Household filing status.
Exemptions – Receive the standard exemption for each child that qualifies.
How to Claim the Child Tax Credit
You don’t need to worry about figuring this out. Online tax filing makes it easy to claim the child tax credit. After asking you a few simple questions about your family, the tax software will determine for you who qualifies as a dependent on your tax return and how much you can get back.
That way, you’ll get the biggest tax refund possible with the least amount of hassle.
What is the New Child Tax Credit Amount After Tax Reform Changes?
Under the Tax Cuts and Jobs Act (TCJA) the following new child tax credit rules will take place starting in 2019:
- The Child Tax Credit changes make it worth up to $2,000 per qualifying child. The age cut-off remains at 17 (the child must be under 17 at the end of the year for taxpayers to claim the credit).
- The refundable portion of the credit is limited to $1,400. This amount will be adjusted for inflation after 2018.
- The earned income threshold for the refundable credit is reduced to $2,500.
- The beginning credit phaseout for the child tax credit increases to $200,000 ($400,000 for joint filers). The phaseout also applies to the new $500 credit for other dependents.
- The child must have a valid SSN to qualify for the $2,000 Child Tax Credit
It is important to remember that the Child Tax Credit can only be claimed once per child – it cannot appear on multiple tax returns.
If there is an argument around who is entitled to the credit, the IRS will make a judgment call based on who will receive the money based on a set of predetermined rules.
The Child Tax Credit is not the only way that you can use tax rulings to help support your children. Here’s an overview of the child-related tax savings that might apply to you:
- There are standard exemptions that apply to each of your qualifying children.
- The Child and Dependent Care Tax Credit allows you to deduct $3,000 per child or a total of $6,000 if you have multiple dependents.
- The Adoption Tax Credit is available to those who have adopted a child or are in the process of doing so.
- Note that if you are unmarried and your child spends at least half of their time living with you each year, then the benefits and deductions available change provided you submit your tax return as a Head of Household.
Form 1040 (Schedule 8812) helps determine if you qualify and the amount of the credit that you will receive. If you prepare your return online, the software will do all of the math for you.
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Frank Ellis is a Traverse City Tax Preparation Planner and published author. He has written tax and finance related articles for twelve years and has published over 1000 articles on leading financial websites.