Quick Breakdown of the 2023 Child Tax Credit

 

Tax season is approaching, which means it’s time to consider your tax strategy. And an essential piece of that is finding ways to reduce your taxable income and tax bill with tax credits and deductions, such as the Child Tax Credit.

As a reminder, a tax credit reduces your tax bill on a dollar-for-dollar basis and could entirely eliminate your tax bill. A tax deduction, like the home office deduction for small business owners, lowers your taxable income.

The Child Tax Credit is one of the most popular for those with children dependents. Check out our simple outline of everything you need to know, from credit amount and income threshold to how to claim it.

What is the Child Tax Credit?

The Child Tax Credit is a non-refundable tax credit available for people with a dependent under the age of 17. This means while it reduces your tax liability and can even negate any taxes you owe, you won’t receive a refund if the amount is higher than your tax bill. However, you might qualify for a partial refund through the Additional Child Tax Credit (which we’ll explain below).

As with any tax credit and deduction, you must meet specific qualifications and income thresholds to receive this tax benefit.

How Much is the Child Tax Credit & Income Threshold?

The 2023 Child Tax Credit amount is worth $2,000 per qualifying dependent child for taxpayers with a modified adjusted gross income of:

  • $400,000 or less for married taxpayers filing jointly

  • $200,000 or less for single filers

For example, if you owe $4,000 in taxes and are eligible for the Child Tax Credit, your tax bill would be $2,000. Remember, the tax credit is phased out for high earners, who receive $50 less for every $1,000 over the threshold. 

Who is Eligible for the Child Tax Credit?

As long as you have a Social Security number valid for employment in the United States, you may claim the Child Tax Credit if your dependent: 

  • Is below age 17 at the end of 2023

  • Is your son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendent of one of the above (e.g., grandchild, niece, or nephew)

  • Provides a maximum of half of their own financial support during the year

  • Has lived with you for more than half the year (although there are some exceptions)

  • Is appropriately claimed as your dependent on your tax return

  • Does not file a joint tax return, unless they need to claim a refund of withheld income taxes or estimated taxes paid

  • Is a U.S. citizen, U.S. national, or U.S. resident alien with a valid Social Security number

You can claim the Child Tax Credit on Form 1040 or Form 1040-SR if you qualify.

What is the Additional Child Tax Credit?

The standard Child Tax Credit is nonrefundable, so you cannot receive a refund for any excess from the credit. But the Additional Child Tax Credit is another credit you can claim to receive a partial refund of up to $1,600 per child.

You must meet the criteria above to qualify for the Additional Child Tax Credit. Additionally:

  • You must either have a minimum earned income of $2,500 OR have three or more qualifying dependents. (Earned income is usually defined as coming from jobs or self-employment and doesn’t include passive income like unemployment compensation, retirement, or IRA distributions.)

  • You or your spouse (if filing jointly) cannot file Form 2555 or Form 2555-EZ to exclude foreign-earned income.

So, if you only owe $1,000 and qualify for the $2,000 Child Tax Credit, you can claim the Additional Child Tax Credit to receive the remaining $1,000 as a refund.

You can find out if you’re eligible by completing the Child Tax Credit Worksheet on Form 1040 along with Schedule 8812, which will tell you your tax credit amount and how much of the partial refund you qualify for. The 2023 filing deadline is April 15, 2024, or October 2024 if you file a tax extension. 

Are you looking for an experienced tax professional to help you navigate the many tax credits and deductions available and determine which you qualify for? JLS Accounting’s experienced team will guide the way and help you get through a smooth tax season! Book an intro call today to learn more and get a jump start on your 2023 taxes.

 
Individual Taxes, TaxJaime Lynn Soares