Child Tax Credit
Editor’s Note: The article below outlines the rules for the Child Tax Credit for tax years beyond 2021. To find rules that apply for 2021, check out our Child Tax Credit stimulus changes article.
Ever heard of the Child Tax Credit? This credit is claimed by millions of American parents with the goal of offsetting the costs of raising a child. The Child Tax Credit is worth up to $2,000 for each qualifying child.
Is the Child Tax Credit Refundable?
This credit can be both a nonrefundable and a refundable tax credit. The refundable portion of the Child Tax Credit is called the Additional Child Tax Credit.
Who Qualifies for the Child Tax Credit?
The Child Tax Credit qualifying child eligibility includes the following:
- The qualifying child must be under age 17 at the end of the year.
- The qualifying child must be one of these:
- U.S. citizen
- U.S. national
- U.S. resident
The taxpayer and child must meet other eligibility requirements to qualify, including relationship, joint return, and Social Security number authentication factors as well.
Divorced and Separated Parents
The Child Tax Credit requirements apply to divorced or separated parents. However, if the parents have a qualifying agreement for the noncustodial parent to claim the child, the noncustodial parent who claims the child as a dependent is eligible to claim the Child Tax Credit.
A parent can claim the child tax credit if their filing status is Married Filing Separately.
The Child Tax Credit amounts change as your modified adjusted gross income (AGI) increases. In fact, once you reach a certain threshold, the credit decreases or phases out.
And the credit is reduced $50 for every $1,000 — or fraction thereof — that your modified AGI is more than:
- $200,000 if filing as single, head of household, or qualifying widow(er)
- $400,000 if married filing jointly
- $200,000 if married filing separately
For the purpose of this credit, your modified adjusted gross income (MAGI) is your AGI plus excluded foreign earned income, possession income, and foreign housing.
Additional Child Tax Credit
If your Child Tax Credit is limited because of your tax liability, you might be able to claim the additional Child Tax Credit. To qualify, one of these must apply:
- Your earned income must be more than $2,500 for 2019
- You must have three or more qualifying children.
If you have at least one qualifying child, you can claim a credit of up to 15% of your earned income in excess of the earned income threshold, $2,500.
If you have three or more qualifying children, you can either:
- Claim a refundable credit of the net Social Security and Medicare tax you paid in excess of your Earned Income Credit (EIC), if any
- Use the 15% method described earlier
The maximum refundable portion of the credit is limited to $1,400 per qualifying child.
More Child Tax Credit Requirements and Rules
You can’t carry forward any portion of the Child Tax Credit to future tax years. You need to claim the nonrefundable credits in a certain order to get the most benefit. You might need to calculate other credits first to properly apply the credit.
While the maximum credit is $2,000 total per qualifying child, taxpayers who don’t have that much tax liability may instead be subject to the lower $1,400 refundable credit limit.
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