Child Tax Credit Guide: How to Qualify for and Claim the Child Tax CreditTax Deductions and Credits
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Children are expensive. From providing the basics like clothes and food to planning for their college tuition, providing for little humans isn’t cheap.
And of course the United States government has a vested interest in its citizens producing more citizens, so in 1997 Congress created the Child Tax Credit as part of the Taxpayer Relief Act of 1997.
Child Tax Credit Basics
The first thing you should know about the Child Tax Credit is that it is, well, a tax credit, not a tax deduction.
This means that the Child Tax Credit reduces your tax liability dollar-for-dollar by the amount of the credit, which is a good thing.
What Is the Child Tax Credit?
The Child Tax Credit is currently a $2,000 partially refundable tax credit granted to eligible taxpayers who have qualifying children or dependents under 17 years old at the end of the tax year.
These dependents must meet specific tests for the taxpayer to qualify for the credit for that child.
How Much is the Child Tax Credit?
Taxpayers are allowed to take a $2,000 credit for each eligible dependent child.
Is the Child Tax Credit Refundable?
One benefit of the Child Tax Credit is that the credit is partially refundable, meaning that if the credit exceeds the amount of tax due, the taxpayer receives some of the excess amount as a refund. Allowing taxpayers to receive a refund is very beneficial to taxpaying families. This credit helps the middle class and low-income families by allowing taxpayers to receive a refund for the portion of their credit not applied against their tax liability.
For another example, assume that a married couple files jointly, has four children, and has a $6,000 tax liability. This family would apply their $8,000 worth of Child Tax Credits to not only reduce their tax liability to zero but also receive the excess $2,000 of credit as a cash refund.
Unfortunately, the full amount of the credit is not refundable as the IRS only allows up to $1,400 of the $2,000 tax credit as a refund. The remaining $600 portion is non-refundable.
Also, the refundable portion is limited to 15% of a taxpayer’s earned income exceeding $2,500. So if a taxpayer does not have any tax liability for the Child Tax Credit to count against and would otherwise be eligible for the full $1,400 refundable portion on one dependent child, the taxpayer must have $11,830 of earned income in order to qualify to take the full $1,400 as a refund.
Tax Reform and the Child Tax Credit
The Tax Cuts & Jobs Act of 2017 (“tax reform” for short) drastically changed the requirements and provisions of the Child Tax Credit. Here are the changes:
- Tax reform doubled the amount of the Child Tax Credit from $1,000 per child to $2,000 per child.
- Tax reform made the Child Tax Credit partially refundable, whereas previously it was entirely nonrefundable.
- Tax reform made more families eligible for the Child Tax Credit by increasing the modified adjusted gross income (“MAGI”) phase-out levels to more than double of what they were before. Previously, single taxpayers with MAGI of greater than $75,000 and married taxpayers filing jointly with MAGI of greater than $110,000 were not eligible to take the full credit. Tax reform changed these amounts to $200,000 for single filers and $400,000 for married taxpayers filing jointly (see below).
Child Tax Credit Requirements and Eligibility
The Child Tax Credit is an amazing tax benefit for lower- and middle-class families, but not everyone qualifies.
There are two kinds of requirements: one at the taxpayer level based on their income and the other at the child level based on various attributes of the child.
The Child Tax Credit is intended to benefit lower- and middle-class families, so if you make too much money, you won’t qualify.
If you are single and your income is $200,000 or below, or if you’re married and your income is $400,000 or below, you can take the full Child Tax Credit on qualifying children.
If you are single and your income is $240,000 or above, or if you’re married and your income is $440,000 or above, you cannot take the Child Tax Credit.
If your income is between the threshold amounts descried above, then you may be eligible for a partial credit.
|Marital Status||Full Credit Allowed||Partial Credit Allowed||No Credit Allowed|
|Single||MAGI $200,000 or below||MAGI between $200,001 - $239,999||MAGI $240,000 or above|
|Married Filing Jointly||MAGI $400,000 or below||MAGI between $400,001 - $439,999||MAGI $440,000 or above|
In order for a child to qualify for the child tax credit, he or she must meet the following requirements:
- Age Test: The child must be younger than 17 at the end of the tax year to claim the credit. For example, if your child turned 17 on December 31, then your child is not eligible for the Child Tax Credit for that tax year. Children aged 17 or 18, as well as full-time college students ages 19-24, do not qualify for the full $2,000 child tax credit, but they do qualify for a smaller tax credit called the Child and Dependent Tax Credit. The amount of this tax credit for eligible children aged 17 or 18 and college students aged 19-24 is $500.
- Relationship Test: Many relation types qualify, including biological children, stepchildren, foster children, adopted children, siblings, step-siblings, or half-siblings. Additionally, nieces, nephews, and grandchildren are allowed should they meet the other tests. This provision also provides for step nieces, step nephews, step-grandchildren, etc. to qualify as well.
- Support Test: In order to qualify, the taxpayer must have provided more than half of the child’s financial support during the year. Taxpayers are also allowed to take the Child Tax Credit on dependent siblings, grandchildren, and nieces/nephews as long as the other required qualifications.
- Dependent Test: The qualifying child must also be claimed as a qualified dependent on the taxpayer’s tax return.
- Citizenship Test: The child must be a United States citizen, national, or resident alien. The child must also have a social security number.
- Residency Test: The child must have lived with the taxpayer claiming the credit for at least half of the tax year.
|16 or less at end of tax year||Children, siblings, nieces / nephews, grandchildren, and step- relationships of these.||Child must be supported at least 50% by parent(s) claiming the credit.||Child must be claimed as a dependent by parent(s) claiming the credit.||United States citizen, national, or resident alien||Child must have lived with parent(s) claiming the credit at least half the year.|
Frequently Asked Questions
- How do I claim the Child Tax Credit?
Taxpayers must file Form 1040 to claim the credit. The person requesting the credit will also have to attach a completed Form 8812 with their tax filing if their child tax credit exceeds their tax liability. The IRS will require a completed Form 8812 if you request a refund of your excess tax credit.
- What if the child’s parents are divorced?
The Internal Revenue Code only allows one taxpayer to claim the Child Tax Credit per dependent per year. If the parents of the child are divorced, only one of the parents is entitled to the Child Tax Credit for that child. The parent claiming the child as a dependent on his or her tax return is also the parent eligible to claim the Child Tax Credit.
- Why do you lose the Child Tax Credit at age 17?
The Child Tax Credit goes away once children turn 17 because the general belief by the IRS and Treasury is that children are less dependent as they grow older. Therefore, the IRS believes the tax benefit should be commensurate with the dependent burden of the child on the family. So, the Child Tax Credit amount is eliminated when children turn 17 years old. Additionally, when students or parents pay tuition and expenses, these expenses are eligible for a number of different education tax credits.
- Is there a Child Tax Credit for kids age 17 and up?
Children who would otherwise qualify for the Child Tax Credit except they are 17 years of age or older are eligible for the Child and Dependent Care Credit. The maximum amount of Child and Dependent Care Credit that can be claimed per eligible dependent is $500. Children who are either 17 or 18 or who are ages 19-24 and in a qualifying college or university qualify for the discounted $500 tax credit provided they meet the other previously mentioned tests.
- Can you take the Child Tax Credit if you file as married filing separately?
If you and your spouse file your tax return as married filing separately, only one of you can claim each child eligible for the Child Tax Credit. This principle is consistent with the previously discussed general rule for divorced parents.
- Can you take the Child Tax Credit if you have no income?
If you have zero income for the year, you cannot take the Child Tax Credit. Taxpayers must have at least $2,500 of earned income to claim the Child Tax Credit. For a taxpayer to receive the refundable portion of the Child Tax Credit, the parent must report at least $11,830 of earned income. If a taxpayer has at least $2,500 of earned income, but less than the $11,830 threshold, the taxpayer can claim the credit but only up to their tax liability for the year.
- Can resident aliens claim the Child Tax Credit?
Yes, resident aliens are generally allowed to claim the Child Tax Credit for their qualifying child, even if their child is also a resident alien as long as the child has a valid social security number.
- Can I take the Child Tax Credit if my only income is from a 1099?
Taxpayers are allowed to take the Child Tax Credit if their income reported to them on Form 1099 is earned income, not passive income. Income from self-employment reported to you on Form 1099 should qualify as earned income for purposes of the Child Tax Credit. The IRS has created a very helpful Earned Income Worksheet for taxpayers to determine the amount of their earned income for a given tax year.
- How many children can you claim for the Child Tax Credit?
There is no limit to the number of dependent children that you can claim for purposes of the Child Tax Credit as long as the children pass the required eligibility tests.
- What if my child passed away during the year?
Complexity exists around the times when a child is either born or, sadly, passes away during a tax year. As long as the qualifying child lived half of the year with you after they were born, the child will pass the resident period test. A stillborn infant would not qualify for the child tax credit, but an infant who passes away shortly after birth would qualify. Additionally, a child’s absence from your family due to vacation, school, illness, or detention in a juvenile facility does not disqualify a child from passing the Resident Period test.
Tyler is a licensed CPA with over five years of Big Four accounting firm experience working with a number of publicly traded and privately held companies. He graduated summa cum laude from Samford University in Birmingham, AL and then received my Masters in Taxation from The University of Alabama.