There is a significant difference between tax deductions and tax credits. While deductions reduce your taxable income, credits have a dollar value. What this means is that the credit amount basically gives you a discount on your tax bill. For 2020, the Child Tax Credit is set to be $2,000 and as much as $1,400 of this amount is refundable. So even if you don’t owe anything to the IRS because of your tax withholding, you’ll receive an extra of $1,600 on your tax refund.
Here is how much you’ll get in Child Tax Credit depending on your children’s age.
- Under 17 years of age (16 years old and younger) = $2,000
- Between the ages of 17 and 18 (or full-time college student aged 19-24) = $500
In conclusion, tax credits are more valuable than deductions. To be qualified for this valuable credit, there are requirements that both the children and the parent must meet.
Child Tax Credit Qualification Requirements
First and foremost, to claim Child Tax Credit, there is an income limit for the parent. The credit phases out if the adjusted gross income (AGI) is over $200,000 for single parents and $400,000 for married couples filing jointly.
Even if the children is under the age of 17, there are a total of seven qualifications (tests) including the age. These tests are age test, residence test, support test, citizenship test, dependent test, relationship test, family income test.
Child Tax Credit Tests
The child must be under 17 years of age at the end of the tax year for which you claim the CTC.
The child cannot provide more than half of her or his financial support during the tax year.
The child must have lived with you for more than half of the tax year.
The child must be any of the following below.
- A U.S. Citizen
- A U.S. National
- A U.S. Resident Alien
The child must be directly related to you meaning that he or she can be your own child, stepchild, foster child, or brother, sister, stepbrother, stepsister, or descendants of any of these individuals like your nephew, niece, or grandchild, etc.
Family Income Test
The phaseout of the Child Tax Credit begins at $200,000 for single parents and $400,000 for married couples filing jointly.
Child Tax Credit Refund 2020
As much as $1,400 of the Child Tax Credit is refundable. However, for this, you need to see the IRS Form 8812 to see if you’re eligible for the Additional Child Tax Credit. If you’re not eligible, your tax bill will be reduced to zero and the remaining unused credit is lost.
Need more information on Form 8812 Aditional Child Tax Credit?
Related Article: IRS Form 8812