The Child Tax Credit (CTC), first enacted through the Taxpayer Relief Act of 1997, has helped provide tax relief for many qualified families over the years. It currently offers a credit of up to $2,000 (2020) per qualified child and persons who may not meet the requirements of a qualified child may qualify for an alternative Other Dependents Credit (ODC) with a smaller credit limit of $500 per qualified person. The credit until recently was nonrefundable, but new legislation has enabled it to be partially refundable, up to $1,400 per child. To claim the credit, a taxpayer must have a qualified child dependent. Who qualifies?
Qualified Child Credit & Other Dependents Credit
For a child dependent to qualify for the Child Tax Credit (CTC) for a taxpayer’s return, the dependent must meet all the following conditions:
- The child must be a relative of the taxpayer (e.g., son, daughter, stepchild, eligible foster child, or even a younger sibling or nephew in some cases).
- Child must be under the age of 17 at the end of the tax year.
- The child does not provide for over half of their own support during the year.
- The child lived w/ the taxpayer for more than half of the tax year.
- The child was a citizen, national, or resident alien.
- The child has a valid Social Security Number (SSN).
In some cases, a dependent may not meet all the criteria, such as a college student who goes to school part time. In that case, they may qualify for the Other Dependents Credit (ODC). To qualify:
- The individual cannot be used to claim the CTC or Additional Child Tax Credit
- The individual must be claimed as a dependent on the taxpayer’s return (see our article about qualifying dependents for more info)
- Dependent is a US citizen, national, or resident alien
Limitations
Naturally, some limits exist on claiming the Child Tax Credit. Currently, taxpayers cannot claim CTC if their modified adjusted gross income (AGI) exceeds $200,000 (2020) if single, or $400,000 (2020) if married, filing jointly. They also cannot claim it if line 18 (which consists of various taxes from other forms) on the Form 1040 is less than the total number of CTC & ODC credits.
Recently, the Child Tax Credit and other tax credits have seen some overhauls in legislation that will affect the upcoming tax year. Business owners should be savvy to such sudden changes, but sometimes running a business can be a labor in itself. Which is why owners rely on the “business health” advice of trusted accounting firms, such as us here at MiklosCPA. We are a California-based CPA firm that supports many small and emerging businesses with their accounting and tax needs. Want to know how we can help your business? Let’s talk. Also follow our social media pages for future articles and other useful “good-to-know” tax tips.
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