Raising children can be a pretty challenging experience, especially for lower-income earning parents. As a result, with parents dealing with finances and taxes, the United States creates an avenue to assist parents with taxation and raising their offspring through the child tax credit.
Therefore, if you live in the United States, this blog post has you covered concerning what CTC is and how to claim it; read on to learn more.
What is Child Tax Credit?
The child tax credit (CTC) is a tax credit offered by the government of various countries, designed to assist parents who have kids depending on them. The CTC provides relief for taxpayers based on the number of dependents they have and their income level. For instance, in the United States, the child tax credit is open to only families that make less than $400,000 every year. While in the UK, the CTC is available to families that make less than £42,000 per year.
If you are an entrepreneur or employee resident in the United States, then you should know that qualifying for the CTC is income-dependent. As a result, if you earn below $2,500 per year, you will not qualify to lay claims to the child tax credit according to US policy. Therefore, as an entrepreneur, you might want to optimize your income and expenses by adopting online invoices and pay stubs provided by online pay stub generators like paystubsnow to automate your business process and save cost on paper financial documentation. Also, your pay stubs offer valid information about your income and taxes to serve as quick evidence when you apply.
Factors affecting child eligibility for a CTC In The United States
In the US, according to the IRS, over 36 million families may be qualified for the CTC in 2021 as part of the American rescue plan Act, 2021, and estimated at approximately $2,000 per qualified dependent. Therefore, before your child becomes a worthy candidate for a CTC, a few criteria qualify them as duly eligible. Here are some of such qualifying factors.
A valid Social security number
Before your child is eligible for a CTC, they must have a valid social security number. The social security number helps to provide factual data on the Child. It is essential to note that if a child only has an ITIN, they will not qualify for the CTC.
The age of the Child
The CTC is only available to children under 17 by the last day of the tax year (December 31st). Essentially, it means that if your child turns 17 on the previous day of the current year, such a child will be disqualified for the child tax credit.
The Child’s nationality
The eligible Child must be a legal national of the country within which they hope to benefit from the child tax credit.
Since the CTC is designed to support families, an eligible Child should not provide more than half of their support. Examples of child personal support include but are not limited to accommodation, feeding, clothing, education, health care, etc.
Only children with direct adult supervision will qualify for the CTC. As a result, your child must be living with you for at least half of the year. Also, you will need a valid document like a lease copy or school records to serve as evidence.
However, there are a few considerations under which an exception can be granted, such as if the child was:
- Away on medical care
- Schooled away from home
- Served in the military
- Away from home when you had a divorce or separation from your spouse, etc.
Only children who bear a familial relationship that is legally recognized will be qualified for a CTC. Examples of such familiar relationships include son/daughter, legally adopted/foster Child, dependent sibling/half-sibling, etc.
Benefits of CTC
The child tax credit was designed to aid many American families in financial commitment to their children, especially with the recent economic upheaval experienced by many families due to the global COVID-19 pandemic, where loads of parents lost their jobs due to the worldwide crisis. Here are a few of such benefits of the CTC.
- Reduction in federal tax by about $1000 per qualified dependent
- The tax credit is fully refundable
- Low-income families qualify regardless of their earning capacity
How to claim Child Tax Credit (CTC) in the United States
Claiming your child tax credit in the united states does not require any elaborate procedure other than filing your taxes appropriately. Your federal income tax return is enough, and you will need the name and social security number for every qualifying child on your tax return. Also, your child must pass all other eligibility requirements as stipulated by US policy.
FAQS: Is child tax credit based on your income?
Is child tax credit based on your income?
The IRS uses your tax returns of previous years or information you provided in the IRS non-filer tool to work out your monthly payment. Therefore, your child tax credit payment will be based on your income, Child’s age, and the number of dependents that you have under your care.
Do I get Child benefit for my third child?
If your third Child is born as part of multiple births, then you can get an extra universal credit and child tax credit. However, if your child is an addition to a set of previous children that you have, it leads to an exception.
What is the difference between a working tax credit and a child tax credit?
Working tax credit concerns working-class people with low incomes and is calculated based on your working hours and pay. At the same time, the CTC supports families that have kids until 16 years but not more than 20 years.
Is a Child tax credit the same as a child benefit?
The child tax credit does not depend on child benefit and is available to all whether or not you are working. It is paid by HMRC to support families with kids and is open to many parents.