- Parents can claim up to 100% of their Child Tax Credit for taxes filed in 2021.
- For taxes paid in 2021, you can claim up to $8,000 for child care costs for a child under the age of 13.
- If you opt for the cash payment, the US Treasury will make monthly direct deposits across 6 months.
The IRS has several refundable tax credits and one of them is the Child Tax Credit. The Child Tax Credit reduces a person’s taxable income and in a certain situation, it can also get you a refund amount if your taxable income is $0.
What is Child Tax Credit?
Child Tax Credit is a form of refundable tax for parents who have dependent children-children under the age of 18. For each dependent child under the age of 17, you can claim a refundable tax credit of $3,000. For a child under the age of 6, you are eligible to get a refund of $3,600.
Eligibility criteria
In order to qualify for the child tax credit, you have to meet the following criteria:
- For the financial year 2020, your modified adjusted gross income has to be under $400,000 if you and your spouse are filing jointly, and $200,000 for any other filing status.
- For the financial year 2021, your modified adjusted gross income has to be under $75,000 if you are single, $150,000 if you are filing jointly with your spouse, and $112,500 if you file as head of household.
- The child in question will have to have lived with you for at least 6 months, and you will have had to support the child for 6 months.
- For taxes filed for the year 2020, the child has to be under the age of 16 on December 31, 2020, to claim a tax credit and for 2021, the child has to be under the age of 17 December 31, 2021.
- A joint tax return cannot be filed with the child.
How you can claim credit
Parents are eligible to get an advance payment as monthly payments as per the American Rescue Plan Act of 2021. Here’s how it works:
- Parents can claim up to 100% of their Child Tax Credit for taxes filed in 2021 or split how the tax credit by claiming 50% as tax deductions and 50% in cash.
- The US Treasury has set up an online portal for applicants claiming 100% of their tax credits at the end of the year. The portal also functions as a database for the IRS to look into factors that influence the amount paid out. This includes things like the child’s age, the claimant’s income and marital status.
- The IRS looks into details like how old the children are and assess the most recent tax returns to determine the amount of child tax credit for each filer.
- When parents opt for the cash payment, the US Treasury makes monthly direct deposits across 6 months from July through December 2021.
Claiming Child and Dependent Care Tax Credit
- With the Child and Dependent Care Tax credit for 2020, you can get a tax credit of up to $3,000 for a child under the age of 13, a dependent parent and a specially-abled spouse. A maximum of $6,000 is usually paid if you have more than 2 dependents.
- For taxes paid in 2021, you can claim up to $8,000 for child care costs for a child under the age of 13, a dependent parent and a specially-abled spouse. A maximum amount of $16,000 can be claimed for expenses when you have more than 2 dependents.
- The amount claimed as tax credits decrease for those with higher incomes since the percentage of allowable expenses also decreases.
- For 2020, Child and Dependent Care Tax credit are non-refundable, which means any amount leftover won’t be refunded if you don’t owe any taxes. However, a refund is applicable for the tax year 2021.
Earned Income Tax Credit
Earned Income Tax Credit (EITC) is a type of refundable tax credit that is offered to individuals who earn a low to moderate-income. Depending on the individual’s filing status, the number of children and level of income, the credit ranges between $1,502 and $6,728. This tax credit is also applicable to people who do not have kids. However, a higher tax credit can be claimed by those who have kids.
