Make the Most of the Child Tax Credit (and Credit for Other Dependents)
With the many changes the Tax Cuts and Job Act created, one change that may be beneficial to many taxpayers is the increase in the Child Tax Credit.
Before the TCJA, the Child Tax Credit was $1,000 and phased out at lower limits. With the changes, more taxpayers may be eligible to benefit from the credit and its new counter-part: the Credit for Other Dependents.
Here are three things to keep in mind when claiming the child tax credit:
- Amount of the Credit: The maximum amount of the credit is $2,000 per qualifying child, with $1,400 of the credit refundable if you owe no tax.
- Eligibility Tests: There are six different tests a qualifying child must pass for their parent/guardian to be able to claim credit:
- Age: A child must be younger than 17 at the end of the tax year (this is generally December 31).
- Relationship: The child must either be your son/daughter, stepchild, foster child, sibling, step-sibling, grandchild, niece or nephew. An adopted child is always treated as your own child, according to the IRS.
- Support: The child must not provide more than half their own support.
- Dependent: You must claim your child as a dependent on your federal tax return.
- Citizenship: The child must be a U.S. Citizen, a U.S. national or a U.S. resident alien.
- Residence: The child must live with you for more than half the year. There are some exceptions, which include temporary absences such as school, vacation, medical care, etc. There are also exceptions for children who were kidnapped or children of divorce.
- Filing Status: The child must not file a joint return for the year (or only files jointly to claim a refund of income tax withholding or estimated taxes paid).
- Limitations: The credit begins to phase out at various levels of income for different filing statuses. That level is $400,000 for married filing jointly taxpayers and $200,000 for all others.
What If My Dependent Doesn’t Meet All the Qualifications?
As part of the TCJA, the IRS created the Credit for Other Dependents, which allows up to a $500 nonrefundable credit per qualifying dependent. Qualifying taxpayers can receive a credit for children older than 17 or any other qualifying relatives the taxpayer may support.
Staff accountant Ericha Chaney contributed to this report.
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