The Child Tax Credit is designed to provide financial assistance to lower-income families with children. It gives those individuals money to buy items for their children they otherwise would not be able to provide. Examples are school supplies and clothing, medical care not covered by Medicaid, and any other item that children from higher income groups have access to in their lives.
The money created by this law is either in the form of a lower tax bill, or it can be a refund that is part of the credit. It all depends on the individual and their financial status.
The Child Tax Credit is part of the Internal Revenue Service (IRS) code. It is enacted by Congress and typically covers only a few years. In other words, a new credit is passed on a fairly regular basis. There is always great debate over the value of the credit, and the amount and income ranges that are covered.
Due to the changes, anyone preparing an income tax return that includes the credit needs to research as it is likely to be different for each year covered.
Credit vs. Deduction
It is important at the outset to differentiate between a credit and a deduction. A deduction lowers a person’s taxable income while the credit is a dollar-for-dollar drop in taxes due.
A simple example will show the difference. Say for simplistic purposes, that the standard deduction is $10,000. For a person in the 10% tax bracket, that deduction lowers the taxes due by $1,000. That is good, but it does not compete with the tax credit. A person who owes $4,000 in taxes, and then that same person has a tax credit of $3,000, tax bill is now down to $1,000.
The key and purpose of the child tax credit as discussed in more detail below is to drive the tax due to a negative number. That means the person filing taxes receives a refund which goes towards the expenses of the lower-income families with children as outlined above.
Purpose
The clear purpose of the child tax credit is to put money in the hands of lower-income families with children. This was discussed earlier. Think of it as an attempt at somewhat leveling the playing field for those families.
The way to measure the effectiveness of the tax credit is to see if it lifts families out of poverty as measured by the federal government. The evidence seems to support that claim. It is the biggest argument in favor of the credit.
History
This benefit goes back to 1997. It has involved numerous changes over the years. Most have expanded the individuals who can be claimed, and the taxpayers who can claim the benefit.
The most recent benefits extend through tax year 2025. They expand the credit while giving more people the opportunity to claim the credit. The law also allows for more taxpayers to claim refunds.
Changes in the law are constantly being pushed in Congress. There are efforts underway to do so now. It is imperative to keep up with the changes that could affect 2023 tax returns already filed, and those that will be filed in the near future.
Changes in Eligibility Criteria or Requirements
There are several criteria for a child to qualify for the expanded tax credit. The first is the child must be under the age of 17 at the end of the year. That child must also have a valid social security number that is acceptable for employment in the United States.
The child must have lived with the person claiming him or her. In addition, they had to live with that person for more than one-half of the year.
The child cannot provide more than one-half of their support. Thus, if you have a 16-year-old who has a great job and supports themself, then they do not qualify even if they live with a parent year-round. The calculation of support can be a difficult task, especially if the child does not pay rent or utilities.
There is also a citizenship requirement. The child must be either a U.S. citizen, national, or resident alien.
There is a long list detailing the relationships between the taxpayer and the child. Naturally, a son or daughter is eligible. That is just the beginning. A stepchild also qualifies, as does an eligible foster child. The list continues with brothers, sisters, grandchildren, nieces and nephews. Anyone who is in doubt about qualifying needs to read the exact listing from the IRS.
Deadlines
The credit must be claimed on a return that meets the normal deadlines for filing in any given tax year. Of course, if someone did not file for a back year, they can still file late and claim the tax credit.
Then there is always an amended tax return. That is designed for the person who either forgot to claim the child tax credit or did not know it existed. Normally there is a deadline for amending a tax return. It is generally three years after the return was filed.
The child tax credit is not a simple matter. It requires knowledge of the IRS code and all of the requirements contained therein. This article was designed to raise questions and provide basic information. Detailed information would require extended looks at the IRS code, and, most likely, consultation with a tax expert.
The time spent looking into it is time well spent.
The Child Tax Credit is designed to provide financial assistance to lower-income families with children. It gives those individuals money to buy items for their children they otherwise would not be able to provide. Examples are school supplies and clothing, medical care not covered by Medicaid, and any other item that children from higher income groups have access to in their lives.
The money created by this law is either in the form of a lower tax bill, or it can be a refund that is part of the credit. It all depends on the individual and their financial status.
The Child Tax Credit is part of the Internal Revenue Service (IRS) code. It is enacted by Congress and typically covers only a few years. In other words, a new credit is passed on a fairly regular basis. There is always great debate over the value of the credit, and the amount and income ranges that are covered.
Due to the changes, anyone preparing an income tax return that includes the credit needs to research as it is likely to be different for each year covered.
Credit vs. Deduction
It is important at the outset to differentiate between a credit and a deduction. A deduction lowers a person’s taxable income while the credit is a dollar-for-dollar drop in taxes due.
A simple example will show the difference. Say for simplistic purposes, that the standard deduction is $10,000. For a person in the 10% tax bracket, that deduction lowers the taxes due by $1,000. That is good, but it does not compete with the tax credit. A person who owes $4,000 in taxes, and then that same person has a tax credit of $3,000, tax bill is now down to $1,000.
The key and purpose of the child tax credit as discussed in more detail below is to drive the tax due to a negative number. That means the person filing taxes receives a refund which goes towards the expenses of the lower-income families with children as outlined above.
Purpose
The clear purpose of the child tax credit is to put money in the hands of lower-income families with children. This was discussed earlier. Think of it as an attempt at somewhat leveling the playing field for those families.
The way to measure the effectiveness of the tax credit is to see if it lifts families out of poverty as measured by the federal government. The evidence seems to support that claim. It is the biggest argument in favor of the credit.
History
This benefit goes back to 1997. It has involved numerous changes over the years. Most have expanded the individuals who can be claimed, and the taxpayers who can claim the benefit.
The most recent benefits extend through tax year 2025. They expand the credit while giving more people the opportunity to claim the credit. The law also allows for more taxpayers to claim refunds.
Changes in the law are constantly being pushed in Congress. There are efforts underway to do so now. It is imperative to keep up with the changes that could affect 2023 tax returns already filed, and those that will be filed in the near future.
Changes in Eligibility Criteria or Requirements
There are several criteria for a child to qualify for the expanded tax credit. The first is the child must be under the age of 17 at the end of the year. That child must also have a valid social security number that is acceptable for employment in the United States.
The child must have lived with the person claiming him or her. In addition, they had to live with that person for more than one-half of the year.
The child cannot provide more than one-half of their support. Thus, if you have a 16-year-old who has a great job and supports themself, then they do not qualify even if they live with a parent year-round. The calculation of support can be a difficult task, especially if the child does not pay rent or utilities.
There is also a citizenship requirement. The child must be either a U.S. citizen, national, or resident alien.
There is a long list detailing the relationships between the taxpayer and the child. Naturally, a son or daughter is eligible. That is just the beginning. A stepchild also qualifies, as does an eligible foster child. The list continues with brothers, sisters, grandchildren, nieces and nephews. Anyone who is in doubt about qualifying needs to read the exact listing from the IRS.
Deadlines
The credit must be claimed on a return that meets the normal deadlines for filing in any given tax year. Of course, if someone did not file for a back year, they can still file late and claim the tax credit.
Then there is always an amended tax return. That is designed for the person who either forgot to claim the child tax credit or did not know it existed. Normally there is a deadline for amending a tax return. It is generally three years after the return was filed.
The child tax credit is not a simple matter. It requires knowledge of the IRS code and all of the requirements contained therein. This article was designed to raise questions and provide basic information. Detailed information would require extended looks at the IRS code, and, most likely, consultation with a tax expert.
The time spent looking into it is time well spent.
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