The IRS has several refundable tax credits and one of them is the Child Tax Credit. This type of credit reduces the taxable income of an individual. In a certain situation, it can also get you a refund even if your taxable income is $0.
What is Child Tax Credit?
Child Tax Credit is a form of refundable tax for parents who have dependent children under the age of 18. For each dependent child under the age of 17, you can claim a refundable tax credit of $3,000. For a child under the age of 6, you are eligible to get a refund of $3,600.
Eligibility criteria
To qualify for the child tax credit, follow this criteria:
- In 2020, your modified adjusted gross income should be under $400,000 in case you and your spouse are filing jointly. It should be under $200,000 for any other filing status.
- In 2021, your modified adjusted gross income must be under $75,000 if you are single. If you are filing jointly with your spouse, it should be $150,000, and $112,500 if you are filing as head of household.
- The child should have lived with the taxpayer for at least 6 months. They will have had to support the child for 6 months.
- For taxes filed for the year 2020, the child has to be under the age of 16 on December 31, 2020, to claim a tax credit and for 2021. As of December 31, 2021, the child has to be under the age of 17.
- You will not be able to file a joint tax return with the child.
How you can claim credit
Parents can get an advance payment as monthly payments, according to the American Rescue Plan Act of 2021. Here’s how it works:
- Parents can claim up to 100% of their Child Tax Credit for taxes filed in 2021 or split how the tax credit by claiming 50% as tax deductions and 50% in cash.
- The US Treasury has set up an online portal for applicants claiming 100% of their tax credits at the end of the year. The portal also functions as a database for the IRS to look into factors that influence the amount paid out. This includes things like the child’s age, the claimant’s income and marital status.
- The IRS looks into details like how old the children are and assess the most recent tax returns to determine the amount of child tax credit for each filer.
- When parents opt for the cash payment, the US Treasury makes monthly direct deposits across 6 months from July through December 2021.
Claiming Child and Dependent Care Tax Credit
- With the Child and Dependent Care Tax credit for 2020, you can get a tax credit of up to $3,000 for a child under the age of 13, a dependent parent and a specially-abled spouse. A maximum of $6,000 is usually paid with more than 2 dependents.
- For taxes paid in 2021, you can claim up to $8,000 for child care costs for a child under the age of 13, a dependent parent and a specially-abled spouse. You can claim a maximum amount of $16,000 expenses in case you have more than 2 dependents.
- Tax credit amount is reduced for those with higher incomes considering the percentage of allowable expenses also decreases.
- For 2020, Child and Dependent Care Tax credits are non-refundable. It means any amount leftover will not be refunded if you don’t owe any taxes. However, a refund is applicable for the tax year 2021.
Earned Income Tax Credit
Earned Income Tax Credit (EITC) is a type of refundable tax credit that is offered to individuals who earn a low to moderate-income. Depending on the filing status of an individual, children and level of income, the credit ranges significantly between $1,502 and $6,728. This tax credit is also applicable to people who do not have kids. However, those with kids can claim a higher tax credit. Use Beem to get a quick and accurate estimate of your federal and state taxes and get the maximum refund.
