7/19/2023
There are several ways to reduce your tax return or get federal assistance. Among them is the Child Tax Credit (CTC), which we will explain below.
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What is the Child Tax Credit?
Usually known as CTC (Child Tax Credit), this federal benefit is available to people with children under the age of 17. You can claim up to $3,600 credit for each dependent when you file in 2023.
If you want to obtain this tax credit, you must meet certain requirements established by the IRS. You must also prove that your gross income is below a certain limit because the credit granted is phased out when you reach the corresponding ceiling. This means less money or ineligibility.
Who qualifies for the CTC?
As a taxpayer, you can claim the Child Tax Credit during this 2023, as long as you meet the 7 basic conditions for it. The 'tests' you must pass are as follows:
- Age of the child. At the end of 2022, your son or daughter should be no older than 17.
- Parenting time. Although there are exceptions to this condition, the dependent child must live with you for at least 6 months of the year.
- Citizenship. According to the Internal Revenue Service, your son or daughter must be a U.S. citizen, a U.S. national (born in a U.S. territory), or a legal resident. In addition, he or she must have a valid SSN.
- Financial support. Within the last year (2022), you must have contributed half of the child's support. This means that if the dependent paid for your things for 6 months or more, you do not qualify for this benefit.
- Filial relationship. The child for whom you are claiming must be your legal son or daughter or possess a blood relationship. In the latter category are siblings, half-siblings, adopted siblings, or any descendants thereof.
- Dependency status. You must prove to the IRS that the child is a dependent. Your son or daughter cannot file a joint return unless they want a refund of income tax withholding or estimated tax.
- Income. Parents or guardians of the child claiming this tax deduction cannot exceed a certain income ceiling. Depending on how much you exceed the limit, the credit is gradually shortened until it is eliminated. If your income is less than $200,000 (individual claim) or less than $400,000 (joint claim), you are entitled to this tax reduction during 2023.
How to claim the Child Tax Credit?
You have the opportunity to claim the CTC on your return using the 1040 form or the 1040-SR. You must also complete Schedule 8812, known as the 'Credit for Qualified Children and Other Dependents', which is enclosed with the above form. This form allows you to calculate the amount and whether you are entitled to a refund.
Similarly, most tax software contains a CTC guide that consists of a questionnaire. This simplifies the process and the software takes care of filling in the items. When your income is below the limit, you can often get a free program from the IRS (Free File).
Difference between the CTC and the CDCC
Although these tax credits look very similar, the essence of each varies in their application and rules.
- Child and Dependent Care Credit. This benefit applies to parents or representatives who are working or seeking employment and serves to cover after-school care expenses, camps and more.
- Child Tax Credit. Unlike the previous one, this is an incentive for taxpayers to reduce their final tax bill.
Credit for other dependents
If your dependent child does not qualify for the Child Tax Credit, but has dependent status, you are entitled to a $500 tax benefit. This money is non-refundable and is called credit for other dependents. The IRS has a tool to find out who qualifies.
What happens if I make a mistake when filing the CTC?
The first consequence of having errors on the respective form for this credit is the delay of the refund. In some instances, you may also be denied the tax credit by the IRS. When your claim is denied, you should proceed as follows:
- Return what you received for the CTC plus interest.
- File Form 8862 ('Information to Claim certain Credit after Disallowance') before claiming the CTC again.
- If the IRS determines that there is an error on your form, you may be charged a penalty of 20% of the amount claimed.
According to the TCJA, the Child Tax Credit will be extended through 2025. If you are interested in other financial topics, feel free to check out the Busconomico database.
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