Raising children is already challenging, let alone worrying about tax issues. Fortunately, the government provides some tax relief for parents, with the most notable being the Child Tax Credit (CTC).
The Child Tax Credit allows parents to claim up to $2,000 in tax benefits for each qualifying dependent child. Additionally, through the Additional Child Tax Credit (ACTC), an additional $1,700 can be refunded.
The CTC is designed to assist low to moderate-income families in obtaining tax relief based on the number of children they support. To qualify for this tax break, factors such as filing status and the relationship between the dependent and the taxpayer need to be considered.
Let’s delve into the details.
The Child Tax Credit allows you to receive up to $2,000 in tax relief for each eligible child. This means it could potentially reduce your tax liability to zero. For example, if you owe $2,000 in taxes this year and claim the full $2,000 in Child Tax Credit, it would reduce your federal tax owed to zero.
However, for high-income earners, the amount of credit that can be claimed decreases as income rises, eventually phasing out completely for those with very high incomes.
If your Modified Adjusted Gross Income (MAGI) is $400,000 or below for married couples filing jointly, or $200,000 or below for other filers, you can claim up to $2,000 for each qualifying dependent child. If your MAGI exceeds these thresholds, the credit reduces by $50 for every additional $1,000 of income until you are no longer eligible.
In addition to income requirements, there are other criteria that must be met to claim the Child Tax Credit. One significant factor is the relationship between you and the dependent. To qualify, the dependent must be one of the following:
– Son, daughter
– Stepchild
– Qualified foster child
– Sibling
– Stepsibling
– Any descendant of the above, such as a niece or nephew
Furthermore, you must have provided at least half of the child’s support in the previous year.
Based on the above, the child must have lived with you for at least half a year, and you must officially claim the child as a dependent. Lastly, the dependent must be a U.S. citizen, U.S. national (non-U.S. citizen), or a U.S. resident alien with a valid Social Security number.
The Child Tax Credit is not set to expire, but its value may decrease. Unless Congress approves an extension, the full credit will revert to $1,000 for each qualifying dependent. Also, the income threshold for phasing out the credit will revert to the levels before 2017. For married couples filing jointly, the credit will phase out at $110,000 of income, and for all other filers, it will be $75,000.
The doubling of the credit and current thresholds are a result of the Tax Cuts and Jobs Act (TCJA) signed by President Donald Trump in 2017. Many provisions of this law are set to expire by the end of 2025. However, President Trump has expressed his intention to seek an extension of these provisions and introduce new tax measures.
The tax credit comes in refundable and non-refundable forms. The value of a non-refundable tax credit cannot exceed the amount of taxes owed. On the other hand, a refundable tax credit can exceed the amount owed, and the excess will be refunded to you in the form of a tax refund.
While the Child Tax Credit itself is non-refundable, some taxpayers may qualify for the refundable Additional Child Tax Credit.
If you meet specific income requirements and Child Tax Credit eligibility, you may also qualify for the Additional Child Tax Credit. If you don’t owe tax or your tax liability is reduced to zero due to the regular Child Tax Credit, this additional benefit can be advantageous to you. If eligible for the Additional Child Tax Credit, you could receive up to $1,700 in refunds. For instance, if you claim the $2,000 Child Tax Credit but owe $1,000 in taxes, in this scenario, the $1,000 is refundable.
You can calculate your Additional Child Tax Credit by multiplying the part of your income over $2,500 by 15%. You can claim that amount or the unused portion of the Child Tax Credit, whichever is smaller.
The Child Tax Credit is something every parent should consider. Each qualifying child can potentially save parents up to $2,000 in taxes, with a portion refundable through the Additional Child Tax Credit. However, if Congress fails to make the Tax Cuts and Jobs Act permanent, this tax benefit may diminish by 2026. Nonetheless, President Trump has stated his commitment to extending these tax benefits. For more tax tips, check out the article “What You Need to Know This Tax Season 2025.”
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