What is Child Tax Credit and What Should You Know About It?
American parents are eligible for a variety of tax exemptions if they have a dependent child under their care. The Tax Cuts and Jobs Act that was passed in 2017 replaced the child tax deduction with a child tax credit that helps you to reduce your income tax by the dollar for dollar system. What is this all about? And how is the child tax credit different from other child-related credits? Read on to know everything about the child tax credit.
What is the child tax credit?
In simple words, if you can show the IRS that you have a dependent child who is currently under the age of 17 years, you are eligible for a dollar-to-dollar tax reduction of $2,000. This amount was previously $1,000 which the Jobs Act changed in 2017. The child tax credit is available for parents whose combined income is no more than $400,000 per year or $200,000 for single parents. Additionally, parents are also eligible to claim $500 of other dependent credits if the child is dependent and under 17 years.
Note, that your child has to be under 17 years old throughout the year for which you are filing the taxes. This means that if you are filing taxes for the year 2020, your child is eligible for the $2,000 credit only if he/she turns 17 on or after January 1, 2021.
How is it different from dependent care credit?
Many taxpayers confuse child care credit with dependent care credit. The former is applicable if you have a dependent child. The latter, however, comes into the picture only when you have paid for child care. Dependent care credit is entirely based on your child care expenses like private kindergarten, nursery school, after-school programs, and so on. The slot is up to 35% of dependent care credit of $3,000 for one child and $6,000 for more children.
The recovery rebate credit of 2020
Claiming child tax credits while filing 2020’s tax returns in 2021 will look a little different. As parents, you might be eligible for a recovery rebate credit if your dependent child under the age of 17 years did not receive the $500 first stimulus check from the government and the additional $600 second stimulus check. You can then claim the stimulus money for your child through the recovery rebate credit while you file taxes for the year 2020.
And that’s it
Include these in your tax filing forms and receive the child tax credit that you deserve as a parent. There is also an earned income tax credit that allows you to receive an exemption of up to $6,600 if your income is less than $41,756 per year. And another line of credit if you recently adopted your child. Get professional help to file your taxes right. Reduce your taxable income and keep your earnings where they belong.
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