Child Tax Credits & Legal Eligibility
To encourage taxpayers to build families, the federal government provides two tax credits related to children. In addition to the basic child tax credit, adults who support children may be able to receive a child and dependent care tax credit, which doubles if they have two or more children. You can qualify for both of these credits at the same time, which can add up to a maximum of $5,000 if you support one child. You may receive $10,000 or more if you support multiple children. Receiving these credits does not affect your eligibility for tax exemptions for dependents.
Eligibility for the Child Tax Credit
Under the Tax Cuts and Jobs Act, you can qualify for the full amount of the child tax credit as long as you do not earn more than $400,000 if you are married and filing jointly, or more than $200,000 if you are single. The child tax credit amounts to a maximum of $2,000 per child. To receive this credit, you must have a child who is classified as a dependent under tax laws. This means that the child must be a citizen or resident of the U.S., they must not be self-supporting, and they must live with you for the majority of the year. The qualifying child must be no older than 16 at the end of the tax year. You must provide their Social Security number on your tax return.
Calculating the Child Tax Credit
You should be aware that the child tax credit is reduced for taxpayers above the income threshold mentioned above, and it is eliminated entirely for taxpayers whose income exceeds a certain threshold. The total tax credit that you receive shrinks by $50 for each $1,000 that your adjusted gross income exceeds the $400,000 (or $200,000) threshold. Thus, if you are a married couple with two qualifying children, and you receive more than $480,000 in adjusted gross income, you would not receive any credit. If you receive $440,000 in adjusted gross income, you would receive half of the credit ($2,000 of the $4,000 credit for two children).
Even if you do not owe taxes, you can collect a partial child tax credit, known as a refundable credit. This amount usually will be calculated as 15 percent of your earned income that is over $2,500, up to a certain limit. However, people with no owed taxes who have three or more qualifying children and receive the earned income tax credit can calculate their refundable child tax credit differently. This is defined as the amount by which their Social Security taxes exceed their earned income credit. You can choose whether to use this formula or the standard formula if you are in this situation.
Eligibility for the Child and Dependent Care Tax Credit
The child and dependent care tax credit is based on money spent on caring for a child. While people with greater incomes receive a smaller amount, the credit does not have a firm income ceiling. You may be eligible for this credit if you are incurring child care expenses that allow your spouse and you to earn income and if you file your taxes jointly. (If you are not married, you do not need to meet the joint filing requirement.) You must have a qualifying child who is under 13, a spouse who is unable to care for their own needs because of a disability, or another disabled dependent who receives less than $4,000 in income per year. Also, your spouse and you must both work at least part-time and must both earn income for the year. You do not need to meet this last requirement if either of you is disabled, a full-time student, or unemployed but looking for a job.
Calculating the Child and Dependent Care Tax Credit
The child and dependent care tax credit can cover 20 to 35 percent of your child care expenses on the days that your spouse or you work. You cannot receive more than $3,000 if you have one qualifying child or more than $6,000 if you have multiple qualifying children. Some people receive reimbursement from their employers for child care expenses, and they will need to subtract that amount from their child care expenses when calculating the credit. You cannot claim the credit if you do not owe taxes.
You should be aware that the credit cannot exceed your earned income or the earned income of your spouse, unless either of you was disabled or a full-time student for at least part of five months during the year. Pursuing an online program or a job training course does not count as being a full-time student. Someone who was disabled or a full-time student will be considered to have earned $250 in each month that they were disabled or a full-time student, or $500 if they have multiple children.
Not every expense related to a child counts as a child care expense. For example, you cannot include school costs for a child who is in the first grade or beyond. However, you can include items such as day care costs, nursery school costs, and babysitting fees. Day care “services” provided by your spouse or a dependent do not qualify. You can claim the credit for a year in which a child turns 13, but you can count only the expenses that arose before the child turned 13.
Eligibility for the Family Care Credit
If you have dependents who are not qualifying children, you may be eligible for the family care credit. This $500 credit was created by the Tax Cuts and Jobs Act. Unlike the child tax credit, it is not refundable, so taxpayers can receive it only if they owe taxes for the year. The family care credit is scheduled to last through 2025.
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