What is the Child Tax Credit?
The “Child Tax Credit (CTC) – Form 1040 Schedule 8812” is a U.S. federal tax credit that provides a maximum deduction of $2,000 per child under the age of 17. To qualify for this credit, there are income limitations: married couples filing jointly must have a modified adjusted gross income of $400,000 or below, while all other filers must have an income of $200,000 or below. If your income surpasses these amounts, the credit is reduced by $50 for every $1,000 over the threshold. Consequently, eligibility for this deduction is lost if your income exceeds $400,000 or $240,000 plus $40,000.
Furthermore, in 2023, some taxpayers may be eligible for the “Additional Child Tax Credit (ACTC),” which could potentially result in a tax refund. This article will explain whether you qualify for the CTC, how to claim it, and how much you can deduct per child.
To qualify for the Child Tax Credit (CTC)
The conditions for claiming the Child Tax Credit for the 2023 tax year are as follows:
- Age: Your child must be under the age of 17 at the end of 2023.
- Relationship: The child you’re claiming must be your son, daughter, stepchild, foster child, brother, sister, half–sisterbrother, half, stepbrother, stepsister, or a descendant of any of those individuals (e.g., a grandchild, niece, or nephew).
- Dependent Status: The taxpayer must be eligible to correctly claim the child as a dependent. Furthermore, the dependent child is not allowed to file a joint tax return, except when the purpose is exclusively to claim a refund for withheld income taxes or prepaid estimated taxes.
- Residency: The child you are claiming for the credit must have resided with you for a minimum of six months within the year (some exceptions to this rule apply).
- Financial Support: Taxpayers must have provided at least half of the child’s financial support in the previous year. In other words, if the child for whom you are applying for the Child Tax Credit in 2023 has been financially self-sufficient for more than six months, they likely do not qualify for the CTC.
- Citizenship: According to the IRS, the child must be a “U.S. citizen, U.S. national, or a U.S. resident alien,” and must possess a valid Social Security number.
- Income: In order to claim this tax credit, the taxpayer’s income must be below $400,000 for those filing jointly (Married Filing Jointly) and below $200,000 for other filing statuses. Exceeding these thresholds results in a reduction of the credit by $50 for every additional $1,000 of income, ultimately leading to a loss of eligibility for the credit once the upper limit is surpassed.
What is Aditional Child Tax Credit（ACTC)?
If taxpayers are eligible for the Child Tax Credit (CTC) but cannot fully utilize it due to owing no taxes or owing less than the credit amount, they may have the opportunity to claim the Additional Child Tax Credit (ACTC) to potentially receive a partial refund.
To claim the Additional Child Tax Credit (ACTC), you must meet all the aforementioned income and dependent criteria, but there are also some additional rules to consider.
- Taxpayers need to have either a minimum earned income of $2,500 or at least three qualifying dependents to claim the ACTC. Earned income usually pertains to money received from employment or self-employment and does not encompass passive income sources such as dividends, pensions, welfare, or unemployment benefits.
- Taxpayers, or their spouses in the case of joint filing, cannot exclude foreign-earned income from their taxes when claiming the CTC.
- The IRS determines the Additional Child Tax Credit (ACTC) by multiplying 15% of your earned income that surpasses $2,500. Taxpayers have the option to claim this calculated amount or the portion of the Child Tax Credit (CTC) that they were eligible for but were unable to use fully, choosing the lesser of the two amounts. For the 2023 tax year, the maximum refund available is limited to $1,600 for each qualifying dependent, an increase from the 2022 cap of $1,500.
If you have three or more dependents, the calculations can become more complex, so please don’t hesitate to contact us for more details.
How to Claim CTC for 2023?
For the 2023 tax year, you can claim the Child Tax Credit (CTC) and the Additional Child Tax Credit (ACTC) on the federal tax return (Form 1040 or 1040-SR) that you file by April 15, 2024, or by October 2024, if you request an extension. You will also need to complete Schedule 8812 (“Credits for Qualifying Children and Other Dependents”). If you have any questions regarding the CTC and ACTC, please do not hesitate to contact Muso & Co.