What is Child Tax Credit and How Can You Claim It?
If you have an eligible and dependent child, the IRS gives you a tax credit that is either subtracted from your taxable amount or sent to your bank account as a tax refund. According to the White House, the Child Tax Credit is intended to help American families to raise their children. For the year 2021, the Child Tax Credit plan is merged with the American Rescue Plan, and taxpayers can now claim a “historic” amount for this tax year.
To ensure that you extract the full benefits of the Child Tax Credit plan 2021-22, here is an all-inclusive rundown of the same. Know what it is, how to claim it, who all are eligible, and more.
What is the Child Tax Credit in filing taxes?
The Child Tax Credit or CTC came into effect with the Taxpayer Relief Act of 1997. Since then, it has evolved to become an annual tax credit that you claim on your taxable income on a dollar-to-dollar basis. Till 2021, a taxpayer could claim up to $2,000 tax credit for a dependent child whose expenses the taxpayer has to bear. For the year 2021, the CTC became a part of the coronavirus relief package or the American Rescue Plan and taxpayers can claim $3,000 to $3,600 based on their eligibility.
For the tax year 2021 only, you are eligible to claim $3,600 CTC for a dependent child below the age of 6 years as of December 31, 2021. That amount reduces to $3,000 if the dependent child is aged between 6 to 17 years. The White House, however, claims that President Biden is pushing to make the CTC amounts permanent as part of his Build Back Better Agenda. If that comes into effect, you can go on claiming $3,000 or $3,600 Child Tax Credit annually every tax season.
Eligibility for the Child Tax Credit
● You must have a dependent child who was below the age of 17 years as of December 31, 2021. Parents of children born in the year 2021 are also eligible to claim the CTC.
● The child must have lived with you for the past 6 months.
● You must have lived in the United States for the past 6 months.
● The dependent child is not filing a joint tax return.
● And your modified adjusted gross income must be less than $150,000 for married joint tax filers, $112,500 for heads of houses, and $75,000 for single filers.
Tax files who earn more than the stated caps are also eligible to claim the CTC but the amount they get start diminishing by $50 for every $1,000 increase in gross adjusted income over the stated limit. In all, the CTC is the easiest tax credit that you can claim from the IRS. It makes most taxpayers eligible for a refund at the end of the tax season.
How can you claim the CTC?
You do not have to fill up any extra form to claim your Child Tax Credit. The basic tax form you fill up, called Form 1040, has a Child Tax Credit section. Simply enter the required details here and the IRS will process your CTC in due time. The Child Tax Credit is entirely refundable and non-taxable. That is, if you have paid more in taxes throughout the year and claim the CTC at the end of the year, the IRS will reimburse you the extra amount that is non-taxable.
For the year 2021, people who filed their taxes in 2019 and 2020 started receiving their CTC as advanced payments. If you received yours, you must have received a Letter 6419 stating the same. In case you received your payments but not the letter, visit the IRS website and get the latest information.
Use your tax credit wisely
As already mentioned, the additional $1,000 Child Tax Credit is available for eligible taxpayers for the tax year 2021 only. Next tax season, the CTC might revert back to its original limit unless President Biden delivers on what he is promising now. Hence, this is a good year to use the extra cash you are getting from the IRS to either build your emergency fund, pay off an existing debt, or get you and your family a used car in Anderson that can ease your transportation needs.
At Family Auto buy here pay here in Anderson, you can start financing a vehicle with just $500 down. And you do not need a good credit score to get started. You may have a poor credit score or no credit score at all and we will approve your bad credit auto loan without any hassle. Also, get a hard-to-beat 2 years/36,000 warranty on the used car you buy, an excellent trade-in policy, and the quality assurance of a trusted buy here pay here dealership in Anderson.
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