Raising a child can be expensive, a recent US News and World Report article estimates $310,000 to age 18 but there are tax credits available to help reduce the burden. The child tax credit is a credit that reduces the amount of tax owed by the taxpayer by up to $2,000 per qualifying child. With the American Rescue Plan, the credit was increased for 2021 and made more accessible to more families than ever before. In this blog post, we will discuss the requirements to take the child tax credit, when you can’t take it, what happens in cases of divorced parents and the credit you can take if you don’t meet the child tax credit eligibility requirements.
The Child Tax Credit.
To qualify for the child tax credit, there are specific conditions that must be met. First, the child must be under the age of 17 at the end of the tax year. Second, the child must be a US citizen, US national, or a resident alien. Third, the child must be claimed as a dependent on the taxpayer’s tax return. Fourth, the child must have lived with the taxpayer for more than half of the year. Finally, the taxpayer must meet a certain income threshold. The modified adjusted gross income (MAGI) for 2023 is $200,000 for single filers, $200,000 for head of households, and $400,000 for married filing jointly. For incomes above these amounts, the credit begins to phase out at a rate of $50 for each $1,000 over the limit.
However, there are situations when you cannot take the child tax credit. If your child was born during the tax year and has not yet turned 17, you cannot claim the credit for that child. In addition, if you do not have a Social Security Number for the child, you cannot claim the credit. This is true even if the child has an ITIN (Individual Taxpayer Identification Number). Finally, if you are married filing separately, you cannot claim the credit.
Divorced parents can face a unique situation when it comes to the child tax credit. Generally, only one parent can claim the credit for the child. This is typically the custodial parent, defined as the parent who has the child for more than half of the year. However, the non-custodial parent can claim the credit if the custodial parent signs a written declaration relinquishing the credit. This declaration must be attached to the non-custodial parent’s tax return. In addition, divorced parents who share custody equally can alternate claiming the credit each year.
It’s important to note that the child tax credit is partially refundable. This means that if the credit reduces your tax liability to zero, you may be eligible for a refund of up to $1,400 per child. This benefit is only available if you earned at least $2,500 in income during the tax year.
Credit for Other Dependents
A $500 nonrefundable credit is available for dependents who are not qualifying children for the Child Tax Credit and each qualifying relative. The AGI limits for the Credit for Other Dependents
are the same as those for the Child Tax Credit. A child over age 16 who otherwise qualifies as a dependent is also eligible. Dependents who are residents of Canada and Mexico do not qualify. The dependent must have a SSN, ITIN, or ATIN issued on or before the due date of the return (including extensions). Children who did not have a valid SSN before the tax filing date, will still qualify for the Credit for Other Dependents if they have an ITIN or ATIN issued on or before the date of the return (including extensions).
The child tax credit is a valuable benefit for families that can help offset the cost of raising a child. To qualify, you must meet specific criteria, including income limits and residency requirements. If you are divorced or separated, it’s important to understand the rules regarding claiming the credit. By maximizing the credit, you can keep more of your hard-earned money and provide for your family’s needs.