Note: the age limit on the Child Tax Credit, Must be under the age of 17 on the last day of the year, for your older child.
The Child Tax Credit allows you to reduce your tax bill by $1,000 ($2,000 beginning in 2018) per child on your tax return.
However, the credit is not refundable. So, how do you qualify?
- First, if you have a child, they must have been under the age of 17 on the last day of the calendar year for which you are claiming the credit. For example, if your child turns 17 on January 1st of the next year, you can claim that child on prior year taxes and are eligible for the Child Tax Credit.
- Second, the child you claim must be a US citizen, a US national or a US resident alien.
- Third, the child is a legal relation, meaning he or she must be your naturally born child, adopted child, stepchild, foster child, brother, sister, stepbrother, stepsister ... or be a descendant of any of them (like your grandchild, niece, or nephew).
- And lastly, your child must have lived with you for more than half the calendar year, and you must provide more than half of their support costs.
Children born during the year or those that have passed away also qualify.
Note:
Nonrefundable tax credits
A nonrefundable credit essentially means that the credit can’t be used to increase your tax refund or to create a tax refund when you wouldn’t have already had one. In other words, your savings cannot exceed the amount of tax you owe. For example, if the only credit you’re eligible for is a $500 Child and Dependent Care Expenses credit, and the tax you owe is only $200—the $300 excess is nonrefundable. This means that the credit will eliminate the entire $200 of tax, but you don’t receive a tax refund for the remaining $300.
Also, you can take full advantage of the credit only if your modified adjusted gross income is under:
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$400,000 for married filing jointly
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$200,000 for everybody else.
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For the 2020 tax year, there are special rules due to coronavirus: You can use either your 2019 income or your 2020 income to calculate your tax credit, and you can use whichever number gets you the bigger tax credit. (This is also the case for the Earned Income Tax Credit.) Be sure to ask your tax preparer to run the numbers both ways.
