As parents, it is your utmost priority to duly look after your child’s needs. Most of you will agree that a ginormous chunk of your earnings goes after the necessities of your children. Do you also come into the league of such parents? It would be best if you then considered the Child Tax Credit. As a measure for some relief to all hardworking parents with dependent children in the American families, the Internal Revenue has in effect the Child Tax Credit. It can act as a good credit scheme to downsize your overall tax liability. After the Tax Cuts and Jobs Act was enacted in 2017, certain key changes were brought in the Child Tax Credit provisions. We will also look at the revised conditions for availing of the credit plan.
We shall dig deeper into comprehending the various crucial aspects of the Child Tax Credit Scheme. It will help you understand whether you can claim the credit in your federal tax return and how you can use it.
What is the connotation of the Child Tax Credit?
This credit scheme stands among the three child-focused federal tax credit schemes which can enable individuals to optimize their tax obligations. A form of a refundable tax credit, the child tax credit is a facility that may be available to taxpayers in the US who have qualifying children or such dependants below 17 years of age as at the end of the given tax year. There are certain other qualifying conditions that a taxpayer must mitigate to take benefit of the scheme. Find out more about the eligibility conditions for availing of the child tax credit.
What are the eligibility criteria for availing of the Child Tax Credit?
A taxpayer must fall under the following criteria to use the child tax credit for your income tax purposes.
What is the meaning of a Tax Dependent?
A tax dependent refers to a child or a relative of a taxpayer whose behalf he can get particular tax credits and deductions. There can be two types of tax dependents. One is the qualifying child, and the other shall be a qualifying relative.
Some of the crucial qualification conditions for a qualifying child include:
Similarly, there are certain conditions for a qualifying relative as well. There is no age limit for the tax dependent, who is a qualifying relative.
What is the amount of Child Tax Credit available for you?
Under the scheme, a person can get about $2,000 for every qualifying child dependent on him. Please bear in mind that your child must be below or equal to 16 years of age.
If you have a qualifying dependent who is not your child or your child’s age is more than 17 years, then you can get a $500 non-refundable credit for your tax requirements.
One of the best parts of availing of the Child Tax Credit Scheme is that it is refundable to the taxpayer even if it does not completely set-off your tax bill. It means once you claim the credit, your tax liability gets reduced dollar by dollar. IRS can refund a maximum of $1400 to you in case your tax bill nullifies completely. This amount is known as the additional child tax credit.
What are the provisions for the phase-out of the Child Tax Credit?
Once your total income touches a certain level, the phase-out from the child tax credit begins. After 2017, the income threshold for single filers as well as the joint filers got revised. The limit for income level for single filers rose from $75,000 to $200,000. While for joint filers, the income level for phase-out of child tax credit increased from $110,000 to $400,000.
What is the process to claim the Child Tax Credit?
An eligible taxpayer can avail of the Child Tax Credit scheme on line 12a of Form 1040 for federal tax reporting. One may even declare the claim details on line 49 of Form 1040 NR.
Leverage the benefits available with Child Tax Credit
The Child Tax Credit is a remarkable backing measure for US citizens to ease the taxing task of raising a family. Consider getting some guidance from some tax professionals and consultants to make the most out of the benefit.
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