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Child Tax Credit

Everything There is to Know About the Child Tax Credit

The saying goes that it takes a village to raise a child. Even if you have friends and family helping you with childcare, there’s no denying that kids are a lot of work and require a lot of resources. With this thought in mind, the Internal Revenue Service (IRS) allows parents to claim a tax credit to ease the financial burden of having kids. The Internal Revenue Service gives a tax credit to parents to help offset the costs of raising a child. Recently, the IRS made changes to the child credit for the 2021 tax year, including monthly payments and extending the eligibility age range. This guide will cover these changes and everything else you need to know about the Child Tax Credit. These changes were not part of a dedicated Child Tax Credit stimulus bill but of the American Rescue Plan, signed into law in March of 2021. It was brought into effect to offset the negative impact of the Covid-19.

Table of contents

What is the Child Tax Credit?...Read more

What are the benefits of the Child Tax Credit?...Read more

Eligibility requirements to receive the Child Tax Credit...Read more

Who qualifies for the Child Tax Credit?...Read more

Child Tax Credit income limit...Read more

Differences between 2020, 2021 and 2022 Child Tax Credits...Read more

Child Tax Credit payment schedule...Read more

Child Tax Credit opt-out option...Read more

Do you need to pay back money from the Child Tax Credit?...Read more

What is the Child Tax Credit?

The Child Tax Credit is issued by the IRS to help parents raise their children. Parents can decide how to use the credit, whether it's paying school fees or paying for childcare. Parents are eligible to receive a Child Tax Credit for each qualifying child. This credit was enacted in 1997 as part of the Taxpayer Relief Act, and parents received a $400 credit. Over the years, the rules changed, credit amounts increased and the qualifying age of a child rose to 17 years old. The 2021 American Rescue Plan provides even more support for parents and expands this credit. Like the Child Care Credit, the Child Tax Credit is an easy way to get a big tax break.

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Itemized Deductions

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Child Tax Credit

The benefits of the Child Tax Credit, who qualifies for it and how it works to help offset the costs of raising a child.

Home Office Deduction

How the home office deduction saves self-employed people and freelancers on their taxes.

What are the benefits of the Child Tax Credit?

Most families will receive a $3,000 tax credit for each child that is 17 years old or younger and $3,600 for children under the age of six. You will receive the advance Child Tax credits before filing your tax return. Also, parents do not have to owe taxes to obtain it, meaning this credit is fully refundable.

Eligibility requirements to receive the Child Tax Credit

There are eligibility requirements for the advance Child Tax Credit payments when filing a joint tax return:

The child or dependent should be below the age of eighteen by the end of 2021 and have a valid Social Security number.
You need to have filed both 2019 and 2020 tax returns and claimed the tax credit on those returns
Your home should be in the United States, including the District of Columbia and all 50 states. You need to live in your US home for more than six months of the year. If you live overseas for six months or more, you will not qualify for the credit.

Eligibility requirements to receive the Child Tax Credit

Who qualifies for the Child Tax Credit?

A child will meet the requirements for child credit if they are a U.S. citizen, U.S. resident alien or U.S. national and meet the age and residency requirements. The child needs to live with you for more than half the year and you claim them as a dependent on your tax return, including stepchildren.

Usually, a parent with primary custody of a child will receive the credit. If you have joint custody and your child divides their time between two households, only one taxpayer is eligible to claim the child credit. The parents must agree when each person receives the credit. One option is to take the credit on alternating years. As a grandparent, you can claim the credit under the head of household category. If you’re pregnant, you are not eligible for the child credit payments unless your child was born by the end of the tax year and has a Social Security card.

Quick tip

Looking at your federal tax return is the easiest way to know if a child in your household qualifies you for the child credit. If you claim the child as a dependent, you're eligible for the credit.

Child Tax Credit calculator 2022

Child Tax Credit income limit

There are various regulations governing the child tax credit income limit. If your adjusted gross income is under $75,000 as a single filer, $112,500 for heads of household and $150,000 for married couples filing a joint tax return, you are eligible for the child credit. But if your income exceeds those amounts but is below $400,000 for married couples filing jointly and $200,000 as a single filer, the credit amount per child is reduced by $50 per $1,000. But don’t worry, you won’t receive any credit less than $2,000 per child. If your income is greater than $400,000 as a married couple filing jointly or $200,000 for a single filer, your credit will be reduced by $50 per $1,000. The credit may fall below $2,000 per child, and the IRS may ultimately disqualify you from the credit altogether. The credit amount phases out for any family earning $438,000 or more.

Differences between 2020, 2021 and 2022 Child Tax Credits

Child Tax Credit 2020

Child Tax Credit 2021

Child Tax Credit 2022

Child Tax Credit payment schedule

There’s no need to spend time applying or signing up for the Child Tax Credit. As long as you’ve filed tax returns for the 2019 and 2020 tax years, or you’ve signed up to receive a government stimulus check, you’re eligible to receive the credit. The Child Tax Credit dates vary for the tax year, but the IRS sent the last child credit payment in December 2021. Since legislation has yet to extend the credit for the 2022 tax year, the credit will no longer be paid monthly but annually. The Child Tax Credit dates for the current tax year occur when you file your annual income tax return.

Child Tax Credit opt-out option

Some parents prefer to receive the child tax payments all at once instead of every month. If you don't want to receive the advance child credit, you may decide to go for Child Tax Credit opt-out, once you opt-out, you can’t opt back in. You’ll need to stick with your decision, so be sure you’re making the right one. There are no positives and negatives to Child Tax Credit opt-out as such, it's just that some people choose it and some don’t.

Do you need to pay back money from the Child Tax Credit?

The good news is that the child credit doesn’t count as taxable income and there’s no need to take it as an itemized deduction. Since it’s a credit, it can be used to lower your tax bill or maybe even score a refund. Now onto the not-so-good news. If the IRS overpaid you on your advance payments for the 2021 tax year, you might have to pay back the IRS. You’ll need to report the overpayment as additional income on your tax return, which may lower your refund or increase the taxes owed.

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