How Does the Child Tax Credit Work?
Each and every working family needs a little bit of help when the tax-paying time comes around – especially working for families with children.
That is exactly why the child tax credit program was developed. The child tax credit is a credit towards your yearly Federal taxes that you receive if you have and support a child or children (or any other young dependents that you care for).
Let’s look into some important and interesting details about how the child tax credit works, and how it can help you!
How Does the Child Tax Credit Work?
You may have asked yourself more than once, “How does the child tax credit work?” Well, in a nutshell, you receive a child tax credit for each young child and dependent in your household. Of course, there are specific requirements regarding the qualifications for receiving the credit for your young dependents. There are also credit amount ceilings for the child tax credit; these ceilings tend to change from year to year.
The child tax credit was designed to help working families: specifically, to help ease the large financial expenses associated with the care and support of their children, or other young dependents that the family may be caring for.
The amount of child tax credit you receive depends on several different things, such as the total amount of your adjusted gross income.
Your received credit will also depend on whether you are:
- Married, but filing separately
- Married and filing jointly
- Single
- Head of Household
- A widow or a widower
How Do I Know if I Qualify to Receive a Child Tax Credit?
In order to make the “child tax credit receipt” grade (so to speak), any qualifying child has to be a daughter, a son, a younger brother or sister, a foster child, a stepbrother/stepsister.
The very next generation of any of the aforementioned that you may be taking care of (for instance, a grandson or granddaughter; niece or nephew), and whom you claim on your yearly taxes, also qualifies you to obtain the child tax credit benefit.
Some other Child Tax Credit qualification requirements include:
- Age of the child: the child – or children – you claim credit for have to be under 17 years of age
- Financial support limitations: Your dependent has not in any way paid for half (or more) of expenses associated with their own living and everyday support
- Income: In order to qualify for the child tax credit, you have to have earned at least $3,000 in income during the tax year
- Citizenship: Any child you claim must be a U.S. citizen or a resident alien
- SSN or TIN numbers: Any child you claim must also have either a Social Security number or a taxpayer identification number
- Any child, or children, you claim child tax credit for have to be claimed on your federal tax return
Of course, qualifications may vary slightly from state to state. Be sure you know the specific qualifications for your state!
Read on for more about answers to your question, “How Does the Child Tax Credit Work?”
2020/2021 -- Historic Tax Relief for Just About Every Working Family
Whitehouse explains that “...the American Rescue Plan, signed into law on March 11, 2021, expanded the Child Tax Credit for 2021 to get more help to more families. It has gone from $2,000 per child in 2020 to $3,600 for each child under age 6.”
There are more historic child tax credit benefits for struggling families within the American Rescue Plan:
- The benefit has been increased from $2,000 to $3,000 for children ages 6 – 16
- The $3,000 credit can be claimed for children and dependents who are 17 years old
- In order for families to receive child tax credit benefits as quickly as possible, the IRS started a monthly payout plan for qualifying recipients (the limit for the monthly payment program is up to half of the total benefit/credit amount)
- The monthly child tax payment plan gives families up to $300 a month, per qualifying child that is under the age of 6 years old. For qualified children between the ages of 6 through 17, the monthly amount is $250 per child
- In the past, low-income earning families did not receive the same amount of child tax credit funds – and sometimes none at all. Thanks to the American Rescue Plan, every family in need receives the full amount of benefits for each child
- Since the monthly payment program sends funds for up to half your total credit amount, everyone receives the remaining credit upon filing their taxes next year
Will the Current American Rescue Plan for Child Tax Credit Affect Your Future Taxes?
To begin with, know that your child tax credit is refundable. That is a wonderful thing, because if you do not owe any taxes to the Federal government – or if you DO owe but the amount is less than your upcoming lump sum credit amount – you will receive every penny of the remaining credit in your next tax refund.
You may, however, end up owing some of the child tax credit back next filing year. That’s because the IRS is basing the value of the advance payments off of 2020 tax information in most cases. If a child turns turn 6 or 18 in 2021, the family would qualify for a lesser tax credit in the case of the child turning 6, or no credit if he or she turns 18, for example.
There is a simple way for you to avoid having to repay the benefit funds: simply be sure to update your information within the child tax credit update portal, which you will find on the IRS website. Be sure to report any changes in the number of qualifying children in your household, as well as any necessary revisions to your income and your filing status.
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