A child tax credit is a blessing for parents and guardians. After all, raising children can be challenging financially. If you’re interested in its eligibility requirements and credit for 2018 taxes, read on for more information.
In this article:
- What Is Child Tax Credit?
- How Do You Qualify for the Child Tax Credit?
- Can I Get More Money as a Refund than I Paid in Withholding?
- Can I Get a Tax Credit for a Child Older than 17?
- What Is the Additional Child Tax Credit?
- How Does the Child Tax Credit Phase-Out Work?
- How Can You Make Sure You Are Eligible for the Credit?
Child Tax Credit | A Guide on How to Maximize It for Your Benefit
What Is the Child Tax Credit?
A child tax credit reduces your tax liability and may also trigger a tax refund. For the 2018 tax year, the credit is $2,000 per child. From this amount, you can have $1,400 as a refund per kid. This is as long as your adjusted gross income (AGI) is below the cut-off of $200,000 per single or head of household or $400,000 for a married couple filing jointly.
The increase in threshold levels is an important change for the 2018 tax year. Thousands of single parents with income over $75,000 and families with take-home pay more than $110,000 a year who were not eligible to receive the child tax credit in 2017 will be able to claim it in 2018.
How Do You Qualify for the Child Tax Credit?
To receive the child tax credit, you must meet a 7-part qualifying test. These include the following:
- Age — Your child must be under age 17 by the end of the tax year in which you file.
- Relationship — The child must be your biological child, adopted or stepchild, or an authorized foster child. Others are minor relatives who are in your care. These can be younger brothers, sisters, or step-siblings. Nieces, nephews, and grandchildren who meet all the other criteria may also qualify.
- Support — You must provide at least half or more of the child’s financial support.
- Dependent — You have to claim the child as your dependent on your tax return. If you are divorced and share custody with your ex-spouse, the parent who claims the child as a dependent is eligible for the child tax credit. You cannot split the amount between both of you. Only one parent or the other may file and claim the child per year.
- Citizenship — The qualifying child must be a citizen, born in American Samoa or Northern Mariana Islands (territories), or a legal resident alien with a valid Social Security number. If your child is not a citizen, you need to apply for a Social Security number to ensure they will be eligible for the credit.
- Residence — The child must have lived in your home for more than half of the tax year with a few exceptions. Absences due to school attendance, illness, juvenile detention, or medical reasons are counted as “time living with you.” If a child was born during the year, the baby counts as having lived with you for the whole tax year.
- Family Income Thresholds — The child tax credit phases out as your AGI increases. Before 2018, the credit phase-out starts at $110,000 for married couples and $75,000 for singles and heads of household. The Tax Cuts and Jobs Act, which went into effect in December 2017, increased the income levels that were eligible for the child tax credit. For 2018, it will not phase out until $200,000 for singles or $400,000 for married filing jointly.
Can I Get More Money as a Refund than I Paid in Withholding?
If you meet all the criteria, you could be eligible to receive a refundable credit of $1,400 per child. You can receive it in excess of the tax you owe. For example, if you have three children and owe $1,000 in taxes after all your deductions and credits, you could receive a refund of $4,200 or $1,400 per child.
This represents a difference from previous tax years. Before the 2018 tax year, the child tax credit wasn’t refundable. If the credit you could receive was more than the tax you owed, you lost it. To receive any money, you needed to apply for an additional child credit through a separate process and form.
Can I Get a Tax Credit for a Child Older than 17?
Children must be 17 or younger and meet all seven of the tests to be eligible for the $2,000 child tax credit. If you have a young adult child who lives with you, or a parent or other relative you care for, you can receive a different tax credit called family credit. It is worth $500, not $2,000, but it will still reduce your tax bill. Unlike the child tax credit, though, the family credit is nonrefundable.
What Is the Additional Child Tax Credit?
In 2017 and prior tax years, the child tax credit was nonrefundable and worth up to $1,000.
Qualified taxpayers could file an additional tax form called IRS Schedule 8812 to apply for a refund on a portion of their credit if the amount exceeded what they owed. How much they could receive as a refund couldn’t go beyond 15% of the AGI over $3,000.
For the 2018 tax year, you don’t need to go through the additional child tax credit process since it can already be refundable.
How Does the Child Tax Credit Phase-Out Work?
If your AGI is more than $200,000 for a single taxpayer or head of household, or $400,000 for a married couple filing jointly, the child tax credit decreases by $50 per child for every $1,000 of income above the threshold. More than $40,000 above the threshold for singles or couples would reduce the credit to zero.
How Can You Make Sure You Are Eligible for the Credit?
First, you need to meet all the eligibility requirements. Divorced couples should decide who will claim the child tax credit. In the process, that person must also recognize the child as a dependent for the tax year.
Starting in 2018, your child may also need a Social Security number in order for you to receive the credit. They should also possess a birth certificate and proof of citizenship or lawful alien status. You can call the Social Security Administration’s national toll-free number at 1-800-325-0778 or visit your local office to apply.
It may take from six to eight weeks to receive the Social Security number. The deadline to file taxes in 2019 is Monday, April 15, 2019.
The tax changes such as that of the child tax credit may bode well for thousands of families. It increases the number of qualified households. A portion of it can also be a tax refund. Further, with the standard deduction increasing by up to 100%, complicated itemized deductions won’t be necessary. Surely, this can help increase family savings.
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