The child tax credit is the extra boost that many families need to alleviate their tax burden. It will be available until 2025, with a maximum payout of $2,000 for each qualifying child under the age of 17.
But, of course, there are always important details to know. Let’s break it down plainly, with no complexities or sideways explanations.
Consider the child tax credit to be a direct reduction in your tax liability. If you have qualifying children, you can reduce your tax bill by $2,000 each. So far, it appears to be fairly simple, right?
What is it and how does this child tax credit work?
Now here’s where things get interesting. Of those $2,000, up to $1,700 is refundable. What does this mean? It means that if your tax liability is less than the credit amount, you may be eligible for a cash refund.
In other words, even if your tax bill is zero, you may still receive a check for the remaining balance.
Who can benefit?
Not all families automatically qualify. There are certain criteria you must meet:
- Relationship: Your child must be biological, adopted, your stepchild, or even a younger sibling if they depend on you.
- Age: The child must be under 17 years old at the end of the tax year.
- Residency: They must have lived with you for more than half the year.
- Social Security Number: The child must have a valid Social Security number before filing your return.
What if I earn too much?
The credit starts to decrease if you exceed certain income limits:
- $200,000 per year for those filing as single or head of household.
- $400,000 for married couples filing jointly.
For every $1,000 you exceed those limits, you lose $50 of the credit. So, if your income is close to these numbers, it’s a good idea to do a detailed calculation to know how much you can expect to receive.
What’s changing in 2025?
For the time being, the $2,000 credit remains in effect, but you should be aware of one important fact. The Tax Cuts and Jobs Act of 2017, which expanded this benefit, will expire at the end of 2025.
If Congress does not approve an extension, the credit may revert to $1,000 per child, with lower income eligibility requirements. This would have an impact on many families who rely on this tax relief.
Steps to claim the credit
Claiming this benefit isn’t complicated, but you must make sure to do it correctly:
- Use Form 1040: It’s the main form for filing your return.
- Include Schedule 8812: This is where you calculate the credit amount and any potential refund.
- Have your documents in order: Birth certificates, proof of residency, and any other documents that support your children’s eligibility.
If your family has undergone significant changes, such as the birth of a child, adoptions, or custody changes, this may affect your eligibility. It’s a good idea to update your information with the IRS to avoid problems later.
Furthermore, while this credit is a great benefit, it may affect the taxes you pay. Depending on your total income, some of your benefits may be subject to federal taxes. If you’re not sure how this affects your situation, consulting with a tax advisor could be a good idea.
