Everything There is to Know About 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. Like the Child Care Credit, the Child Tax Credit is an easy way to get a big tax break.

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.

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 17 by the end the tax year and have a valid Social Security number.
• Your annual income should not be over $400,000.
• 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.

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.

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.

There’s no need to spend time applying or signing up for the Child Tax Credit. As long as you’re a taxpayer, you’re eligible to receive the credit. For the 2022 tax year, the credit will no longer be paid monthly but annually. And it is back to the 2019 refund limit, with the maximum amount being $2,000. So, the Child Tax Credit dates will be April 15, when you file your annual tax return.

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.

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. If you are looking for deductions, you can use a 1099 tax calculator to find business expenses you can claim. The self-employment tax rate is 15.3% which includes both Social Security and Medicare taxes. A tax liability over $1,000 means making quarterly estimated tax payments to the IRS. If you’re expecting a refund from the IRS, make sure to wait at least 3 weeks for them to process it. It could take even longer if your tax return has any mistakes in it. FlyFin makes it easy for self-employed individuals to find deductions and file their taxes every year. Simply link your expenses and A.I. takes care of the rest by finding every tax deduction you can take advantage of. CPAs who are experts in 1099 taxes are available 24/7 on the app to provide guidance and even prepare and file your returns for you.