The Child Tax Credit: What is it?
American taxpayers who have children under the age of 17 at the end of the year are eligible for the Child Tax Credit, a tax benefit. The credit is $2,000 for each eligible kid for the 2023 tax year (the tax return submitted in 2024).
If you make up to $200,000 as an individual filer or $400,000 as a joint filer, you are eligible for the entire amount for each kid. For parents with greater salaries, the benefit is tapered away.
After two years during which emergency legislation relating to the COVID-19 epidemic increased the payment to as high as $3,000 per kid and $3,600 for children under the age of six, this benefit has returned to its pre-2021 levels.
The Operation of the Child Tax Credit
On a dollar-for-dollar basis, the Child Tax Credit reduces the total taxes due by taxpayers. (This is preferable to a tax deduction, which lowers total taxable income and typically yields less savings.)
You need the dependent child’s Social Security number in order to receive the credit. Schedule 8812, Credits for Qualifying Children and Other Dependents, must be filed with Form 1040 in order to claim it.
If the dependent kid or children fulfill the following requirements, the credits are available:
At the conclusion of the tax year, is under 17 years old?
is a sister, stepbrother, stepsister, half-brother, half-sister, foster kid, stepchild, or a descendant of any of those relatives.
has spent more than half the year living with you.
has provided no more than 50% of their own assistance.
is shown on your taxes as a dependant.
has either filed just to get a refund of anticipated taxes paid or has not filed a combined return with a spouse.
Is a resident, national, or citizen of the United States an alien?
To assist taxpayers in determining if their dependant or kid is eligible for the kid Tax Credit, the IRS provides an online tool.
The Child Tax Credit Claim Process
Since they are aware that they owe no money, some low-income individuals choose not to file taxes. That may be incorrect for a number of reasons.
Everyone must file a tax return, with the exception of those with the lowest incomes. But more significantly, you could be losing out on certain worthwhile advantages for which you qualify. One of these is the Child Tax Credit, which, when paired with the Additional Child Tax Credit, is partly refundable if you have a family. This implies that even if you have no outstanding taxes, you may still get a portion of it back.
A taxpayer must submit Form 1040 (U.S. Individual Income Tax Return) in order to be eligible for the Child Tax Credit. Schedule 8812 (Credits for Qualifying Children and Other Dependents) must also be attached by the taxpayer.
The amount of Child Tax Credit that a taxpayer is qualified to receive is determined using Schedule 8812.
The Effect of the Child Tax Credit on Poverty and Policy
The majority of working families have benefited from the Child Tax Credit since it was implemented in 1997. It has frequently been criticized over the years for helping the poorest families—many of whom do not file tax returns and are not taxpayers—little or not at all.
Both low- and moderate-income families and the whole economy were significantly impacted by the Child Tax Credit’s growth during the epidemic. Prepayment of benefits to qualified taxpayers is one of the emergency solutions. Additionally, some attempts were made to contact extremely low-income households who were difficult for the IRS to identify when the checks were mailed since they did not often file tax returns.
Frequent changes expanded the qualifying standards and raised the Child Tax Credit amount long before the pandemic struck; at one point, refunds were only available to taxpayers with three or more children.9. However, the poorest families did not get the Child Tax Credit for years.
Benefits were extended to the most vulnerable families in 2021 for the first time thanks to a large rise in the credit amount and the provision of 100% refundability. As stated by Columbia University’s Center on Poverty & Social Policy, “…the sixth Child Tax Credit payment kept 3.7 million children from poverty in December 2021.”
The American Rescue Plan Act, a measure officially intended to alleviate the economic issues brought on by the COVID-19 epidemic, included the increased and fully refundable Child Tax Credit. Numerous restrictions deemed troublesome in previous iterations of the Child Tax Credit were also addressed.
The extended credit represented a significant outlay of funds. Democrats in Congress were overwhelmingly in favor of the higher Child Tax Credit. Republicans were generally in favor of some enhanced benefits for children, but they were critical of the implemented form of the Child Tax Credit since it was expensive and did not require any work. To optimize the usage and advantages of the credit, the Biden administration launched a comprehensive public education and advertising campaign.
The Bottom Line
For the 2023 tax year, each kid or other dependant is eligible for a $2,000 kid Tax Credit. Even people who do not owe any income tax may get a portion of the ACTC as a refund since it is partially refundable, but the CTC is not. Refunds start at $1,600 in 2023 and go up to $1,700 in 2024.