When you’re a parent, every little bit of credit helps at tax time. If you have dependents and meet certain conditions set forth by the Internal Revenue Service (IRS), you might be eligible for three tax credits that can potentially save you up to several thousand dollars. Qualifying for the Child Tax Credit, the Child and Dependent Care Credit or the Earned Income Tax credit, could mean a refund that helps enrich your family’s life.
What Is the Child Tax Credit and How Do You Qualify?
The Child Tax Credit is a financial credit given to those with qualifying dependents under age 17, intended to offset the costs of raising and caring for a child. If you’re unsure if you qualify, the IRS spells out exactly how to qualify for the Child Tax Credit on its website and provides an interactive tax assistant to help you determine whether you are eligible.
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As a parent dealing with the cost of ballet recitals, trumpet lessons, school supplies and a hefty amount of superhero-shaped mac and cheese, a credit probably sounds great to you. Your next question is likely “How much is the Child Tax Credit?” The answer is that it can vary each year, but it runs up to $2,000 per qualifying child for 2020 income tax returns. Up to $1,400 of the Child Tax Credit is refundable per qualifying child under the Additional Child Tax Credit. To make things even better, you could still receive these refundable tax credits even if you don’t owe any 2020 taxes.
It’s also important to note that the IRS imposes a Child Tax Credit income limit, and it’s not uncommon that the Child Tax Credit changes year to year in terms of income level or credit amount. For 2020, the credit starts phasing out for those with $200,000 of modified adjusted gross income for individuals or $400,000 for married couples who file joint tax returns.
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Alternative: The Credit for Other Dependents
If you cannot claim your dependents for the Child Tax Credit, they may still qualify for a non-refundable tax credit of up to $500, known as the Credit for Other Dependents. They must be U.S. citizens, U.S. nationals or aliens with U.S. residency to be eligible for the Credit for Other Dependents.
Note that the IRS requires children to have a social security number that was issued by the Social Security Administration before your tax return will qualify for the Child Tax Credit or Additional Child Tax Credit.
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What Is the Child and Dependent Care Credit and How Do You Qualify?
If you have a child or dependent who needs care while you’re out working or looking for employment, the Child and Dependent Care Credit may ease some of the financial burdens. Your spouse is also eligible if you file joint tax returns. The IRS has requirements for those receiving care, however. They can be any of the following:
- Your dependent-qualifying child, if he or she was under age 13 when receiving care.
- Your spouse, if he or she is incapable of self-care because of mental or physical issues. This person must live with you more than half the year and be unable to attend to his or her hygiene and nutritional needs. Your spouse is also eligible if he or she needs a caretaker to prevent self-harm or danger to others.
- Another dependent who is physically or mentally incapable of self-care and who lived with you for more than half the year. The IRS spells out specific eligibility requirements for people in this category.
Keep in mind that the IRS imposes a limit of $3,000 in expenses to calculate this credit for a single qualifying individual and $6,000 for two or more qualifying individuals. You won’t receive the credit if you or your spouse are the individual’s caretaker or if the caretaker doesn’t meet the specific criteria provided by the IRS.
What Is the Earned Income Tax Credit and How Do You Qualify?
If you don’t have much income, you may be eligible for the Earned Income Tax Credit (EITC), also known as the Earned Income Credit (EIC), which lowers your owed taxes and sometimes provides you with a refund. You must file a tax return to get the EITC, even if you had no income or are otherwise not required to file one. Below are some of the other major requirements:
- If you’re married, you must file a joint tax return with your spouse.
- You must have a valid social security number that was issued before the due date of your tax return, including any extensions. This also applies to a joint filing spouse and anyone else listed on your Schedule EIC.
- You must have earned some income in 2020, by working for someone else or through your own business or farm.
- You must be a U.S. citizen or a resident alien for the year.
- You cannot be the child of another person who qualifies for the EIC.
- You cannot file either Form 2555 or Form 2555Z.
- You must meet certain income limits, which are subject to change each year. The IRS website lists the limits for the 2020 tax year.
In addition to meeting those criteria, you must either have a qualifying child or meet these child tax credit eligibility qualifications:
- Be at least age 25 but no older than 65 at the end of the year
- Live in the U.S. for at least half of the year
- Not qualify as a dependent for any other person
What Is a Qualifying Child?
Now, this begs the question: What is a qualifying child, anyway? Fortunately, the IRS lays out four areas of child tax credit requirements that you must meet to receive the EITC: age, relationship, residency and joint return. Each of those areas has its own specifications:
- The child must be under age 19 at the end of the year, as well as be younger than you or your spouse if you file a joint tax return; or
- he or she must be a full-time student for at least five months out of the year, be under age 24 at the end of the year and younger than you or your spouse if you file a joint return; or
- he or she must have a permanent and total disability at any time during the year. There is no age restriction on this qualification.
- The child must have one of the following relationships to you: son, daughter, stepchild, adopted child, eligible foster child, brother, sister, half-brother, half-sister, stepbrother, stepsister or a descendant of any of those relatives
- The child must have lived in the United States with you or your spouse for more than half of the year if you file a joint return.
Joint Return Test
- The child must not have filed a joint return. If he or she did so, however, you’re still eligible if filing the return was not required and was only done to get a refund.
If you prefer not to calculate the EIC amount on your own, the good news is that the IRS will determine it for you if you follow the instructions on your Form 1040. To determine it yourself, use the Earned Income Credit Worksheet in the Form 1040 instruction booklet and the accompanying table.
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