You may have heard the term “child tax credit” before. If you’ve heard the term but are still wondering exactly what is the chiId tax credit, then you’re in the right place.
In this article, we will discuss what exactly is the child tax credit. We will also look over the specifics of the child tax credits in recent years so you know, in dollar terms, what they mean.
What Is The Child Tax Credit?
The child tax credit is given to American taxpayers who have qualifying dependent child/children. It’s purpose is to help taxpayers support their families.
How it works is that this benefit decreases taxpayers’ tax liability. And that reduction of your tax liability is based on a dollar-for-dollar basis.
That means if you owe $5,000 in taxes, you would reduce that amount by the amount of the credit.
The American Rescue Plan Act of 2021
Just recently, the American Rescue Plan Act of 2021 expanded how this credit works for most people in the US.
Because of this, it is estimated that the new rules will decrease the number of children living in poverty by close to 50 percent. Here are the details of how this works.
In 2020, the maximum annual credit was $2,000 for each child who is under the age of 17.
However, in 2021, the maximum annual credit is much bigger. President Biden’s American Rescue Plan Act raises the credit from $2,000 to $3,000 between the ages of 6 and 18 years old. For child 5 and under the credit is even larger at $3,600 per child.
In 2020, the child tax credit was partially refundable. However, things have changed this year and the tax credit is now fully refundable.
This year, eligible families will receive $300 a month if they have children under the age of 6 years old. As for eligible families who have children under the age of 18, they will receive $250 a month.
This year, eligible families will receive the payments of child tax credit in advance. Starting from July 15, 2021, families will receive their monthly benefits.
But how exactly will one family become eligible for the it?
How To Become Eligible For The Child Tax Credit
There are two qualifying requirements for one family to become eligible for the child tax credit.
One for the taxpayer and one for the qualifying dependent child.
If the taxpayer has provided more than half of the dependents’ financial support during the tax year, then they may be eligible for the child tax credit. Only one taxpayer can claim the benefit.
In cases of joint custody, the parents must have an agreement on who will receive the benefit every year. If not, only the parent with primary custody must receive the benefit.
For a dependent to be eligible for the child tax credit, they need to be a U.S. citizen/national/resident alien. They are also required to meet the dependency, age, and residency requirements.
They must also be living with the person who is claiming the tax credit for more than half of the tax year and must be claimed as a dependent on that taxpayer’s return.
