ADMINISTRATIVE PROCEDURES
Child Tax Credit (CTC) is one of the many social benefits in the USA. It was especially useful during the Covid pandemic, which saw many people's incomes fall dramatically. Open to people responsible for children, the Child Tax Credit is extremely helpful for low and middle-income earners. In this article, we'll explain the program in detail to ensure you are in a position to take advantage.
An Introduction To The Child Tax Credit
Child tax credit began in 1997 thanks to the launch of the Taxpayer Relief Act. Since then, the federal-run program has expanded, and the benefit payments have increased. The Child Tax Credit scheme works in 2 ways. First, it reduces the tax requirement and liability for parents of children, and second, it acts as a refundable tax credit. Following the tax calculations, a percentage of the remaining excess credits are paid back to the eligible person. In 2023, a parent can be reimbursed with as much as $1500 per child. It is possible to claim Child Tax Credit for every child the person is responsible for.
Child Tax Credit Eligibility
To be eligible for Child Tax Credit, an individual must meet these 3 requirements:
- • Wages - A person must earn more than $2500,
- • Tax details - A person and their spouse need the United States Social Security Number or the Individual Taxpayer Identification Number,
- • Responsible for a "dependent child."
Additionally, each "dependent child" must meet the following:
- • They need to be your daughter, son, stepchild, adopted child, grandchild, younger sibling, or foster child,
- • The child needs to be less than 17 years of age by the 31st of December,
- • They must live in the USA for more than 6 months of the year, and they must reside with the Child Tax Credit receiver,
- • The child must be a US citizen or a US resident with a Social Security number.
What Payments You'll Receive?
For 2023, the Child Tax Credit is valued at $2000 for each child under your care. For those earning $200,000 (or $400,000 for a married couple), for every $1000 over this limit, the Child Tax Credit is reduced by $50. When the tax returns are made at the end of the tax year, up to $2000 per child can be deducted from a person's tax bill. If any tax credit remains after the calculation, 15% of a person's salary above $2500 is refunded.
How To Calculate Child Tax Credit: An Example
Suppose a parent earns $20,000 a year and has 1 child less than 17 years old. Assuming their employer took care of the federal taxes from their wages, the parent does not have an outstanding tax bill. They are entitled to a $2000 Child Tax Credit. To calculate their payment:
Subtract $2500 from $20000 and multiply by 15%.
That means their benefit is: (20000 - 2500) X 0.15 = $2650.
However, the maximum refund is $1500 so they'll receive $1500 from the IRS.
Changes And Variations To The Child Tax Credit System
Though the value of CTC has risen regularly over the years, the most dramatic change was seen in 2021. Because of the Covid pandemic, the benefits system became more generous than ever before. The Federal Stimulus Bill (known as the American Rescue Plan Act of 2021) enabled enhancements such as:
- • The age of the qualified children was increased to 18,
- • The value of the payment became $3000 ($3600 for children less than 6 years old),
- • The $2500 income requirement was removed,
- • The entire Child Tax Credit was refundable (i.e., not limited to a maximum of $1500),
- • Advance Child Tax Credit Payments were made. For the tax year 2021, the IRS used figures from the 2020 tax year to estimate Child Tax Credits, and half of the outstanding payments were made in advance.
These changes were a one-off due to Covid and the unique societal circumstances. The rules have now reverted to those of 2020 with adjustments for inflation. Anyone needing to claim their Child Tax Credit from 2021 can still do so under the 2021 guidelines.
How To Apply For Child Tax Credit
Application for the Child Tax Credit is made by completing an Individual federal tax return (called form 1040). You can download it here. Additionally, you must add Schedule 8812 (Form 1040) to obtain tax credits for your children. Schedule 8812 (Form 1040) is available through this link. You can apply online or by mail. The IRS will assess your application and calculate and make any due payments into your bank account.
Final Remarks
Over the years, the Child Tax Credit scheme has helped many people ease their financial burden. It is one of the many social benefits to help those people with children. As the after-effects of the Covid pandemic continue, Child Tax Credits are a welcome help for many parents in the United States.