Child Tax Credit: What It is and How to Calculate It 2023
February 27, 2023
If you are a parent or a guardian looking to claim your Child Tax Credit, you’ve reached the right article!
Child Tax Credit can prove beneficial, especially in helping you manage the expenses that come with parenting. As the prices of basic needs continue to spike, having something akin to a safety net ensures you have a reliable source of extra funding to meet your child’s necessities.
So read this article to help understand the full scope of the Child Tax Credit and how you can qualify for it!
Key Takeaways
- Child Tax Credit (CTC) offers compensation to help parents manage the expenses coupled with raising children.
- Parents who qualify for CTC can claim up to $2,000 per qualifying child on tax returns.
- Dependents must be aged 17 and below to be eligible for the benefits of the Child Tax Credit.
- There have been multiple legislative changes to CTC since its first enactment in 1997 to ensure both low and middle-income families benefit from it.
- You can use the IRS’ Interactive Tax Assistant to assess whether you qualify for Child Tax Credit.
- Use Form 1040 or 1040-SR and attach a Schedule 8812 to claim your CTC.
What is Child Tax Credit?
Child Tax Credit (CTC) is a form of compensation or payout during tax season to assist parents in regulating child-rearing expenses. Eligible parents can claim up to $2,000 on their tax return per child, provided the child or children are below 17 years of age.
California, Colorado, Connecticut, Idaho, Maine, Maryland, Massachusetts, New Jersey, New Mexico, New York, Oklahoma, and Vermont are the twelve states in the US that have Child Tax Credits.
A parent who earns a higher income will likely qualify for partial credit. If the child’s parents are married, both spouses must have been US citizens or resident aliens for the entire tax year to qualify for CTC.
Meanwhile, nonresidents, dual-status aliens, and international taxpayers may check what the IRS has in store for them in terms of their Child Tax Credit eligibility.
Child Tax Credit History
Here is a quick run-down of all the key changes to the Child Tax Credit from its enactment in 1997 up until its latest revision in 2021:
- 1997 (The Taxpayer Relief Act of 1997). The Child Tax Credit was enacted as a nonrefundable tax credit amounting to $400 per child. Taxpayers were required to provide their taxpayer ID to qualify.
- 2001 (The Economic Growth and Tax Relief Reconciliation Act of 2001). The credit amount per child was raised to $600 from 2001 to 2004. Subsequent scheduled increases of up to $1,000 per child until 2010 were also enforced.
- 2009 (The American Recovery and Reinvestment Act of 2009). The tax credit refundability was reduced to $3,000 per taxpayer. On top of that, low-income taxpayers became qualified for a portion of the refundable credit.
- 2017 (The Tax Cuts and Jobs Act). The maximum credit amount was raised to $2,000 per child. Adjustments also had to be made due to inflation, thereby setting the credit formula at 15% of the income of families earning a little over $2500.
- 2021 (The American Rescue Plan Act of 2021). The eligibility of qualifying children for Child Tax Credit was extended to 17-year-olds. Furthermore, the maximum credit amount was raised to $3,600 per qualifying child aged 0 to 5 years old and $3,000 for 6 to 17-year old children.
- 2022-2025. The enhancements applied under the ARPA reached the end of their effectiveness. This means that the provisions under the TCJA of 2017 and the $2,000 credit cap for each qualifying child, now apply.
What Qualifies You for the Child Tax Credit?
Check out the following qualifications to find out whether you’re qualified for the Child Tax Credit:
- Income-wise, you make more than $2,500.
- You have a child aged 17 or below on December 31, 2022.
- You have been a US citizen, a US national, or a US resident alien.
- Your child has lived with you in the US for over half the year
- If you are a non-custodial parent, you must secure a signed waiver from your child’s custodial parent permitting you to claim the child as your dependent
- You can present your Taxpayer Identification Number. If you are married, you and your spouse must have either an Individual Taxpayer Identification Number (ITIN) or SocialSecurity Number (SSN)
How to Calculate the Child Tax Credit
For the 2023 tax year, the maximum child tax credit is $2,000 per qualifying child aged five and below and $3,000 for dependents aged 6 to 17. You also cannot receive portions of the credit in advance.
The IRS has an Interactive Tax Assistant on its website. It is designed to help parents and guardians assess whether they qualify for the Child Tax Credit.
Keep in mind that before accessing the Interactive Tax Assistant, you will have to prepare the following information:
- Filing status
- Date of birth of your child or dependent
- Whether you can claim the child as a dependent
How to Claim the Child Tax Credit
Firstly, your child or dependent must have a social security number for you to qualify to receive the tax credit.
CTC can reduce your tax bill since it is a partially refundable tax credit. This partially refundable portion is referred to as “additional tax credit.”
It is also possible to apply for up to $1.500 worth of tax refund for any leftover in your tax bill.
You can claim your tax credit through Form 1040 or 1040-SR (US Individual Income Tax Return). At the same time, you must fill out and attach a Schedule 8812 (Credits for Qualifying Children and Other Dependents) to help evaluate your Child Tax Credit amount and check how much of the partial refund can be claimed if applicable.
Using tax software proves helpful because it will guide you in claiming your Child Tax Credit by automating the filing process. If your income falls below a specific threshold, you can use the IRS’ Free File to get free tax software.
If you qualify for CTC, you may also be eligible for any of the following:
- Adoption Credit and Adoption Assistance Programs
- Child and Dependent Care Credits
- Education Credits
- Earned Income Tax Credits
In the event that your child is not considered a qualifying child under the CTC’s standards, then you may try and see if your dependent is eligible for the Credit for Other Dependents instead.
What to Do if the IRS Denies Your CTC Claim
The IRS may audit or deny your Child Tax Credit claim because your child does not qualifyor another individual has already claimed the same child.
Errors in the calculation may also be a factor.
When this happens, the IRS will send a letter containing instructions on what steps to take next. You will also be asked to send copies of any of the following documents:
Proofs of Relationship
- Birth certificate
- Paternity test results
- Marriage certificate
- Legal adoption papers
- Official school records
Proofs of Residency
- School, medical, or social services records
- Official letterhead from a school, social service agency, healthcare, or medical provider
- Official letterhead from a placement agency official, employer, or Indian Tribal Official
- Official letterhead from a landlord or property manager, church, mosque, synagogue, or house of worship
Aside from proofs of relationship and residency, you may also be asked to submit other important papers cited in your notice. These documents will serve as proof of your eligibility for your credits.
Another countermeasure you can take if your CTC claim is denied is to file your Form 8862 (Information to Claim Certain Credits After Disallowance) with your next tax return.
Child Tax Credit FAQ
#1. How much is the Child Tax Credit in 2023?
For tax returns filed in 2023, tax credits are at a maximum of $2,000, per qualifying dependent aged 17 below.
#2. Is the Child Tax Credit taxable?
No. The Child Tax Credit is a partially refundable tax credit, meaning it can lower your tax bill based on the credit rate. If you have zero liabilities, you may be qualified to get part of the credit back as a refund.
#3. Does the Child Tax Credit include advance payments?
The temporary modifications implemented by the American Rescue Plan Act (ARPA) on the CTC for the tax year 2021 apply to advance payments for the CTC. It includes issuing a set of advance payments from July through December 2021.
ARPA’s legislative changes have not yet been transferred over to the tax year 2023.
#4. Can I claim the tax credit in 2023 if I had a baby in 2022?
Yes, you can, as long as you meet all the other requirements. Don’t forget to ensure your child already has a Social Security Number on or before your due date for the 2022 return plus extensions.
Final Thoughts
Parenting is a lifetime responsibility. It is essential to invest your resources and money accordingly for your child’s basic needs. Unfortunately, it can be especially challenging for low-income families.
Child Tax Credit is a convenient option that allows you to allocate the funds you need to manage your finances and secure funds for your child’s necessities and their future. It is worth learning how you qualify for CTC so you can maximize the benefits that it offers.
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