Rachel Cruze: 7 Things You Need To Know About the Child Tax Credit
The child tax credit (CTC) gives qualifying families with children a tax break. It’s designed to help parents balance the costs of raising children. However, not every family qualifies for the CTC, and this credit (which can have a major impact on your personal taxes) has been modified in the last few years.
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Rachel Cruze, financial expert and host of “The Rachel Cruze Show,” recently shared her insight about the child tax credit to Ramsey Solutions. Here’s a brief summary of that article, with seven key takeaways you need to know about the child tax credit.
What Is the Child Tax Credit?
The CTC is an IRS program that gives qualifying parents a break on their taxes. If your household meets the income requirements, you can claim your dependents when you file your taxes and receive a maximum credit of $2,000 per child.
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Cruze’s Insight: 7 Must-Knows About the CTC
Here are seven essential points from Cruze’s comprehensive overview of the CTC to help you take advantage of it.
You Must Meet the Income Requirements
To qualify for the CTC, you must earn less than $200,000 or $400,000 if you’re married and filing jointly. These income requirements apply regardless of the number of dependents you claim. However, parents with higher incomes may be able to claim partial credit in some circumstances.
Your Child Must Qualify
Income isn’t the only requirement for the CTC. Your child or dependent must also meet certain requirements, including:
Your child must be under 17 at the end of the year.
Your child must be related to you by family, marriage or adoption.
Your child must be a U.S. citizen or legal resident.
Your child must have lived with you for more than half the year.
These are the basic qualifications — we’ll cover more in-depth qualifications below.
The CTC Is Refundable
The CTC is a refundable tax credit. In other words, if the amount of your credit is greater than the amount you owe, you’ll be refunded the remainder. The IRS allows up to a $1,500 CTC refund for each qualifying child.
A Child Can Be Claimed on Only One Return
Your child must be claimed as a dependent on your tax forms to qualify for the CTC. According to the IRS, children can only be claimed on one tax return per year. So, if you and the child’s other parent file separately, you cannot both qualify for the CTC.
Your Child Cannot File a Joint Return or Support Themselves
It’s OK if your child has a part-time job and files their own tax return. However, if they file a joint return with their spouse, you no longer qualify.
Additionally, your child cannot fund more than half of their financial needs with their own earnings and still qualify as your dependent. If they fully or mostly support themselves, you can’t claim the CTC.
COVID-Era Modifications Have Expired
The American Rescue Plan went into effect in March of 2021, offering credit expansions and other forms of financial support in the wake of the economic downturn caused by COVID-19. One aspect of the American Rescue plan was an expansion of the CTC up to $3,600 per child under the age of six and $3,000 per child from age six to 17.
Unfortunately, these modifications have now expired. If you see an article claiming the child tax credit can be up to $3,600, that information is outdated. The current child tax credit amount is up to $2,000 per child.
It’s Easy To Claim the CTC
As long as you and your dependents meet the qualifications, it’s easy to claim the child tax credit. There are two steps:
Claim your dependent on Form 1040: Enter all the relevant information about your child or children when you fill out Form 1040, more commonly known as your income tax return.
Fill out Schedule 8812: This form should be attached to your tax return. It will help you calculate the amount you can claim for your child.
The maximum amount qualifying households can receive per dependent is $2,000, however, not all qualifying families will receive this full amount. If you can’t access the entire CTC, you may qualify for the additional child tax credit (ACTC) for up to $1,600 per child.
Final Take
The child tax credit may seem complicated, but it’s simpler than you think. You don’t have to be a financial expert like Cruze to gain the benefits of this program. Just make sure you claim your dependent on your 1040 tax return and file Schedule 8812.
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This article originally appeared on GOBankingRates.com: Rachel Cruze: 7 Things You Need To Know About the Child Tax Credit
