The child tax credit (CTC or Child Tax Credit) has some requirements that you should know if you have small children or dependents. It is very convenient, here we show you the requirements. For tax year 2019, this credit reduces the amount of federal income taxes by up to $2,000 for each child.
Now, in the last two years there have been notable changes in this tax credit. These changes, which were a consequence of the tax plan that President Trump signed in December 2017, they included a higher cap amount and new requirements for a minor to qualify.
Keep reading: How much is the credit per child in the 2021-2022 taxes?
- 1 What is the child tax credit?
- 2 Requirements to get the child tax credit
- 3 Claiming the child tax credit
- 4 How much of the child tax credit is refundable?
- 5 The Additional Child Tax Credit
- 6 The credit for other dependents
- 7 The Child and Dependent Care Tax Credit
- 8 Frequent questions
- 9 In conclusion
What is the child tax credit?
The Child Tax Credit is designed to offset the expenses of parents or guardians of dependent minors, and only applies to dependent children under the age of 17. As we have mentioned, for each child the credit can reduce the amount to be paid for taxes by up to two thousand dollars; however, the income level of the responsible adult determines exactly how much the final benefit of the credit is.
In this order of ideas, you must have earned at least $2,500 to qualify for the CTC. However, this credit does not apply to people whose income is greater than $200,000 dollars, and $400,000 for joint taxpayers. In these cases, the most that can be obtained is a partial credit.
As a reminder, or in case you didn’t know, tax credits reduce the amount a person must pay to the Internal Revenue Service (IRS).. For example, if your tax bill is $3,000 and you are eligible for $1,000 in tax credits, your final bill will be $2,000. The tax credit works differently than a deduction, since the latter only reduces the taxable amount of income.
Requirements to get the child tax credit
If you meet all seven requirements, the cchild tax revenue can significantly reduce your tax bill: 1. Proof of age; 2. Relationship test; 3. Support test; 4. “Dependency” test; 5. Proof of citizenship; 6. Proof of residence; 7. Proof of family income. You and/or your child must pass all seven requirements in order to claim this tax credit.
1. Proof of age
To qualify, the minor must have been under the age of 17 (that is, a maximum of 16) at the end of the fiscal year for which the credit is requested.
2. Relationship Test
The child must be the applicant’s biological child, stepchild, or a minor under guardianship ordered by a court or authorized agency. As for adopted minors, these are always considered as children. In addition, this category also covers minors in the process of adoption who have been placed under the legal guardianship of an adult and whose process has not yet concluded. It is also possible to claim a brother or sister, stepbrother, stepsister. And even their descendants, who would be nephews or grandchildren of the applicant, as long as all the requirements are met.
3. Support test
To qualify, the dependent child cannot have provided more than half of their own financial support during the tax year.
4. “Dependency” test
Another requirement for the child tax credit is that the child must have lived with you for more than half the year.
5. Proof of citizenship
The minor must be a US citizen, US national, or US resident alien. (For tax purposes, the term “national” refers to people who were born in American Samoa or the Commonwealth of the Northern Mariana Islands.)
6. Proof of residence
The dependent child must have lived with you for more than half of the tax year for which you claim the credit. However, there are important exceptions:
- A child who was born (or died) during the tax year is considered to have lived with you for the entire year.
- Temporary absences, both of the applicant and the minor, due to special circumstances (education, vacations, business, medical care, military services, or stay in a juvenile detention center), are counted as if the minor had lived with you.
- There are also some exceptions to the residency test for children of divorced or separated parents.
7. Proof of family income
The Child Tax Credit is reduced if your Modified Adjusted Gross Income (MAGI) is above certain amounts, which are determined by the filing status you chose on your tax return.
For 2017, this threshold was $55,000 for married couples filing separately; $75,000 for widowers and heads of households; and $110,000 for married couples filing jointly. For every $1,000 of income above the threshold, the child tax credit is reduced by $50.
Claiming the child tax credit
Eligible taxpayers who meet the requirements can claim the child tax credit on Form 1040, line 12a, or Form 1040NR, line 49. To help you determine exactly how much credit you qualify for, you can use the worksheet child tax credit and credit for other dependents provided by the Internal Revenue Service.
How much of the child tax credit is refundable?
For 2019, up to $1,400 of the CTC is refundable. (Previously, CTC was not fully refundable.) So, as we’ve already mentioned, if your income tax bill when you file for tax year 2019 is zero, it’s entirely possible you could get a $1,400 refund for each eligible child. On the other hand, this amount is also indexed to inflation, so it will increase slightly each year.
However, the new tax law also limits the refundable portion of the CTC to 15% of your income that exceeds $2,500. This means you need to have at least $11,830 in earned income to qualify for the full $1,400 refund.
The Additional Child Tax Credit
The additional child tax credit (ACTC) was the refundable portion of the child tax credit. It could be claimed by families who owed the IRS less than the amount of their child tax credit. Because the child tax credit was nonrefundable, the additional tax credit allowed the taxpayer to receive a refund of the unused portion of the Child Tax Credit.. Now, this provision was removed from 2018 to 2025 by the 2017 tax law. However, the new form of the child tax credit includes a provision for refundable credits. But if you need to file a return for a previous tax year, you can find information for the ACTC at Form 1040.
The credit for other dependents
As of tax year 2018, there is an additional $500 credit for other dependents (ODC or Other Dependent Credit), thanks to which it is possible to claim dependents who are not minors. The eligibility requirements are very similar; however, ODC cannot be claimed for a dependent who qualifies for CTC.
The Child and Dependent Care Tax Credit
Another similar credit is the Child and Dependent Care Tax Credit (CDCTC). You can claim this credit if you earned income during the tax year and paid a third party to care for a dependent.
Unlike the CTC, which can only be claimed if you are the parent or guardian of the minor, you can request the CDCTC for elderly parents and other disabled relatives. Dependents who qualify for the CDCTC include:
- Children who are 12 years old or younger at the end of the fiscal year;
- Dependent adult family members or spouses who are unable to care for themselves due to mental or physical impairments, unless they have a gross income of $4,150 or more.
With the CDCTC, you can claim a credit of up to 35% of the costs of caring for the disabled person. Now, the exact percentage of the deduction depends on your income level, and the maximum amount of care expenses the credit can apply to is $3,000 for a single dependent and $6,000 for more than one. This means the highest possible credit is $1,050 with one dependent and $2,100 with multiples. On the other hand, the CDCTC is non-refundable. To claim the CDCTC, it is necessary to complete Form 2441.
How many dependent children can I claim?
There is no limit to the number of dependent children you can claim on your tax return.
Can I claim my boyfriend/girlfriend’s child on my taxes?
Yes, in some cases, such as when the child’s biological father is not required to file a return.
Who can claim a dependent in case of joint custody?
In this case, both parents must agree and decide who will claim the child as a dependent. In the event that both claim the same child, the Internal Revenue Service will use the following tiebreaker rule to determine who can claim the child:
- If one of the two is the legal and/or biological father, it is he who can claim the minor.
- If you are both the legal and/or biological parents of the child and you do not file a joint return: The parent with whom the child lived for the longest period of time during the year can claim the child; In the event that the child has lived with both parents the same amount of time, the parent with the higher adjusted gross income can claim the child.
In case of divorce, who can claim the dependent child?
As in the previous case, both parents must agree on who is going to claim the child. And if both parents claim the dependent child, the tax credit will be granted to the parent who declares first.
Usually, the custodial parent claims the child. However, if the noncustodial parent provides half of the child’s financial support, the noncustodial parent can claim the dependent child in question.
If all 7 requirements are met, the Internal Revenue Service offers a child and dependent child tax credit to help parents and guardians offset some of the costs of supporting a family. If a dependent minor who is not your direct child lives in your home, you may be able to claim one of these credits for him. And because some child tax credits are refundable, you could even earn some money.
And if you want more help lowering your tax bill, consider working with a Financial Advisor who specializes in taxes. Having a financial plan can be key to not leaving any loose ends during tax season.