Child Tax Credit—More Than Half of Americans Don’t Fully Understand It
The Child Tax Credit can be a saving grace for parents. However, recent changes have made the credit hard to understand. Knowing who qualifies for the credit, how to claim it, how much the credit comes out to be, and how it impacts your taxes are all important to know.
Yet, a recent GOBankingRates survey of 1,000 Americans revealed that half of the respondents didn’t know the answers to these questions. Here’s what you need to know to fully understand the Child Tax Credit.
Who Qualifies for the Child Tax Credit?
According to the GOBankingRates survey, 24% of respondents did not understand who qualifies for the Child Tax Credit. To get the credit, you must have a “qualifying child” in accordance with the IRS. According to IRS.gov, a qualifying child meets the following terms:
- Under 18
- Taxpayer’s son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of any of them (for example, a grandchild, niece, or nephew)
- Does not provide more than one-half of his or her own support during the tax year
- Lives with the taxpayer for more than one-half of the tax year
- Claimed as a dependent by the taxpayer
- Does not file a joint return with a spouse for the tax year 2021 or files it only to claim a refund of withheld income tax or estimated tax paid
- U.S. citizen, U.S. national, or U.S. resident alien
There’s also an income component. According to the IRS’s website, you qualify for the full amount of the Child Tax Credit if your annual income is not more than:
- $150,000 if you are married and filing a joint return, or if you are filing as a qualifying widow or widower;
- $112,500 if you are filing as a head of household; or
- $75,000 if you are a single filer or are married and filing a separate return.
How Much is the Full Child Tax Credit?
The GOBankingRates survey revealed that 21% of Americans weren’t sure just how much the Child Tax Credit amounts to. This is one of the pieces of information that changed between 2021 and 2022. In 2021, as part of President Biden’s American Rescue Plan Act (ARP), the Child Tax Credit increased to $3,000 per child under 18 years of age and $3,600 per child six and younger. The amount will now go back to $2,000 per qualifying child.
How Can You Claim the Child Tax Credit?
Knowing if you qualify and how much the credit is becomes a moot point if you don’t know how to claim the credit, and 19% of Americans don’t know how to claim it, according to the GOBankingRates survey. IRS.gov explains that you can claim the Child Tax Credit by entering your children and other dependents on Form 1040, otherwise known as your U.S. Individual Income Tax Return. You’ll also need to attach a completed Schedule 8812 form. These forms can be found on the IRS website or through your accountant.
How Does the Child Tax Credit Impact Your Taxes?
This is something that 27% of respondents wanted to know in the GOBankingRates survey. Going forward, if the credit you receive exceeds the amount of taxes you owe, then you most likely are entitled to a refund of the excess credit up to $1,400.
In 2021, when the amount of the Child Tax Credit was higher, it acted as if you got some of your refund ahead of time. So, you might have seen a “reduction” in your refund, but that’s only because you received it prior to filing. Wendy Barlin suggested looking at the 2021 Child Tax Credit as if you received some of your refund early. “Taxpayers are not ‘losing’ any of their refund. It is simply a timing difference. Refunds were, in essence, prepaid,” Barlin said.
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