Question

What’s the difference between the child tax credit and a dependent exemption?

Answer

An exemption will directly reduce your income. A credit will reduce your tax liability.

A dependent exemption is the income you can exclude from taxable income for each of your dependents. In 2020, you can exclude $4,300 for each dependent.

The child tax credit:

  • Is a credit that offsets the tax you owe dollar for dollar
  • Is available if you have a child younger than age 17 at the end of the year
  • Can reduce your tax by as much as $1,000, (2003 – 2020, through the Working Families Tax Relief Act) for each qualifying child

You can only claim the child tax credit if you claim the child as a dependent.

If you meet the requirements, you can claim an exemption for a dependent on your return and the child tax credit for that dependent.

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