Child Tax Credit
Child Tax Credit
When we file our taxes, we get various opportunities to reduce our taxable income through deductions and tax credits. Many of us are eligible for various deductions and tax credits depending on our situation. Today we'll be covering child tax-credit. If you are financially supporting your children, you can take advantage of 'Child Tax Credit'. There are different rules and conditions on how and when you can take this tax credit. With the advent of the new 2017 Tax Bill, this credit has become event more attractive. Therefore, let's dig into it to save some money.
Image by Steve Buissinne from Pixabay
Rules:
If you have children under the age of 17 whom you are financially supporting, then you can reduce your taxes owed by $2000 on a dollar-by-dollar value per child.
This credit is refundable up-to $1400 after the 2017 Tax Bill. This means that if you owe less than $1400 in federal taxes, then after applying this credit you'll get a tax refund of the remaining amount.
Child tax credit can be taken for your kids, sister, brother, step brothers or sisters, foster kids, niece or nephew.
Child tax credit can be taken for adopted kids too.
If the child has not contributed more than half of the amount by himself then you can take this tax credit. For example: If your child's expenses for the year are $8000 and s/he contributed up-to $4000 then you can take 'child tax credit'.
The child should be a US citizen or US resident alien.
You need to claim your children as a dependent while filing your federal income tax return.
Image by Steve Buissinne from Pixabay
Limitations:
Like all other tax credits, this one too has some limitations. Not everyone is eligible for the same credit amount. Moreover your income decides what amount of tax credit you can get. However significant changes were made in 2017 Tax-Bill which will now benefit even high income earners. Let's see what is the phase-out threshold for different filing statuses now:
For single, or head of household, or qualifying widow(er) filer, the taxable income limit is $200,000 for this tax credit.
For married and filing jointly, the taxable income limit is $400,000 for this tax credit.
These higher income limits will phase out after 2025.
The child tax credit is reduced by $50 for every $1000 earned above the phaseout range. For example, let's say you are married and filing jointly. Lets say your taxable income is $405,000, then you are making $5,000 more than the threshold. The child tax credit that you can take will reduce to $750 since $50 is deducted on each additional $1000 earned above threshold.
I hope you find this information useful. Don't forget to check these rules and see if you can save yourself some money on your tax return.
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