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Here Are the Important Basics on Child Tax Credit

by Mark Sander5 min read
Here Are the Basics on Child Tax Credit

Raising children can be financially challenging, especially for low-income households. One of the options to spend less is through the child tax credit (CTC).

Now that is tax season is around, understanding how this credit works proves even more essential. When you know more about it and apply it correctly, it can save you thousands of dollars each year.


What Is The Child Tax Credit? 

The child tax credit is a form of tax relief, and it can be federal or state. In the previous federal law, it was non-refundable, which it means it immediately reduces your tax liability up to zero. It is not a tax deduction, which you have to itemize when filing. Under the Tax Cuts and Jobs Act, a huge part of it could already be refunded.

The states can also implement their own child tax credit in addition to that of the federal government. For example, New York has a fully refundable credit, which can be around 33 percent of the federal CTC or more than $100 for every qualifying child.



Who Qualifies for the Child Tax Credit?

On the federal level, the IRS imposes strict conditions for qualifying a child. According to it, the child must be:

  • Below 17 years old at the end of the tax year
  • US citizen, resident alien, or national
  • Part of the filer’s household for more than six months of 2010 (unless exempted under publication 972 under child tax credit)
  • Proclaimed as dependent in the tax return
  • Holder of a Social Security Number (SSN)

The child also has to pass certain qualification “tests.” The common ones have already been mentioned above. Others are support and relationship.

Under the condition, a child qualifies if the filer provides more than 50 percent of the financial support. This information is important since it means the credit is not limited to your own children. You can also file it if you give a substantial assistance to other members of the family. These include siblings, nieces and nephews, grandchildren, and even descendants of these individuals. It also covers adopted children.



How Much Can You Claim? 

In the previous law, the filer can claim up to $1,000 per qualifying child. Under the new tax reform plan, it will increase to $2,000. The filer can claim a refund up to $1,400, but it will increase in 2019 to adjust for inflation.

The rules, however, recognize phase-outs. It simply means you do not get to reduce your tax due with the tax credit right away. Rather, you should consider your modified adjusted gross income (MAGI). The higher it goes, the lesser your tax credit becomes due to the phase-out. It is $50 reduction per $1,000 or part of it that your MAGI goes beyond a certain threshold. The amount varies depending on the status. Presently, the threshold for married couples who file jointly is $110,000. In the new law, it will increase to $400,000. 

In other words, it is possible to be eligible for a tax credit and still not lower your tax due. This is understandable, however, since the purpose of it is to help lower-income families. The good news is you can claim an additional CTC if your income tax due is lower than the CTC. 


Here Are the Basics on Child Tax Credit


Can One Claim the New Child Tax Credit? 

Most of the provisions under the new law will take effect the following year, 2019. This is because, in 2018, the tax returns are for 2017. The law did not come to be until that year.


Who Can File for the Claim? 

Only one person can file for a claim for a qualifying child. It applies even if the parents have joint custody or share equal expenses. In case either of the parents has the sole or primary custody, such parent is responsible for filing the claim.

Raising children certainly takes a village, and when it comes to managing finances, your best friend is the government. With the child tax credit and other forms of child-related tax reliefs, you pay lower taxes. You may even look forward to a refund. You can then use this money to make sure you meet your children’s needs on time.