How Are the Child Tax Credits Different? Your Comprehensive Guide
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Updated for 2024.
Raising kids is expensive. Thankfully, becoming a parent comes with some valuable tax breaks from the Internal Revenue Service (IRS) — most notably, the Child Tax Credit (CTC).
Here’s how the CTC and similar tax benefits work for parents filing individual income tax returns in 2024. In this article, we’ll cover the CTC, as well as the Additional Child Tax Credit (ACTC) and Child and Dependent Care Credit (CDCC).
At a glance:
- Child Tax Credit: Provides up to $2,000 per qualifying child.
- Additional Child Tax Credit: Refundable part of the CTC, up to $1,600 per child.
- Child and Dependent Care Credit: Offers up to 35% of qualifying childcare expenses.
What is the Child Tax Credit (CTC)?
The Child Tax Credit offers financial relief to families by reducing their tax liability. For tax year 2024, the maximum CTC amount remains at $2,000 per qualifying child under the age of 17. Up to $1,600 of this credit is refundable, which means that even if you owe no taxes or didn’t earn any income last year, you could receive this amount as a tax refund when you file your tax return.
Additional Child Tax Credit (ACTC)
The ACTC is essentially the refundable portion of the CTC. If your CTC exceeds the amount of tax you owe, you may be eligible to claim the ACTC, which is currently worth up to $1,600 per child in 2024. Eligibility for the ACTC is determined through the same criteria as the CTC, and you will need to complete Schedule 8812 to apply. This form will help you figure out your credit amount.
If that sounds complicated, don’t worry. TaxAct® does these calculations and pulls the necessary tax forms for you when you e-file your federal tax return with us.
How the Child Tax Credit works
Like other tax credits, the CTC is valuable because it reduces your tax bill on a dollar-for-dollar basis. For example, if your adjusted gross income (AGI) is $50,000 and you qualify to claim a $6,000 Child Tax Credit, the credit reduces any taxes you owe by $6,000. So, if your tax bill turns out to be $8,000, your $6,000 credit would reduce the total amount of taxes you owe to $2,000.
What is the Child Tax Credit amount for tax year 2024?
The maximum total credit amount for the 2024 tax season remains $2,000 per child under age 17.
Income thresholds
You qualify to claim the maximum value of the Child Tax Credit if your modified adjusted gross income (MAGI) is $400,000 or below for those married filing jointly or $200,000 or below for all other filers not filing a joint return.
If your MAGI is higher than those limits, you could still receive a portion of the tax credit. In that event, your credit amount will be reduced and start to phase out by $50 for every $1,000 over the income threshold.
Is the Child Tax Credit taxable?
No, the Child Tax Credit is not taxable.
What’s the difference between the Child Tax Credit and the Child and Dependent Care Credit?
The Child and Dependent Care Credit (CDCC) is a separate credit that helps working parents offset the costs of childcare. Unlike the CTC, this credit is specifically for expenses related to the care of children under the age of 13, or other dependents who are unable to care for themselves. This credit can cover up to 35% of qualifying expenses, depending on your income, up to a maximum of $3,000 for one dependent or $6,000 for two or more.
Child Tax Credit qualifications
How to qualify for the Child Tax Credit
Your eligibility for this tax credit depends on your relationship to the child and the child’s age, as well as some additional factors:
- Age and Residency Requirements: To qualify for the CTC, the child must be under 17 at the end of the tax year, a U.S. citizen, national, or resident alien, and have lived with you for more than half the year. You must also have provided at least half of their financial support.
- Relationship: Qualifying dependents must be your son, daughter, adopted child, foster child, stepchild, younger sibling, stepbrother, stepsister, or descendant of any of them (such as your niece, nephew, or grandchild).
- Taxpayer Identification Number: Both you and the child must have valid Social Security numbers.
Credit for Other Dependents
If the child does not have a valid SSN but does have an individual taxpayer identification number (ITIN), you may be able to claim the Credit for Other Dependents. This is a $500 nonrefundable credit for dependents who do not qualify for the CTC, such as dependent parents and other relatives or dependents living with you who are unrelated to you.
What happened to the Child Tax Credit payments?
The advance Child Tax Credit payments were a temporary pandemic relief provision in the American Rescue Plan Act which has since expired. For a limited time in tax year 2021, there was an expanded Child Tax Credit, and American families could receive part of their CTC in direct payments throughout the year, rather than waiting until filing taxes to claim the credit.
How do I claim the child tax credits?
TaxAct can help you determine if you qualify for the Child Tax Credit, Additional Child Tax Credit, or Child and Dependent Care Credit. Based on your answers to a few simple questions, we can help you claim all the tax benefits you qualify for when filing your federal income tax return.
This article is for informational purposes only and not legal or financial advice.
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