Child and Dependent Tax Credit

Child Tax Credit

The American Rescue Plan Act (ARPA) expanded the Child Tax Credit only for 2021. The expansion included an increase of the credit to $3,000 per qualifying child ($3,600 if below age 6), an increase in the age for a qualifying child to less than 18, a change in the nature of the credit from non-refundable to refundable, and the option to receive the credit in advance. Continuation of the expanded Child Tax Credit was included in subsequent legislation that failed to become law. As a result, the Child Tax Credit reverts to its previous form for 2022 and provides that:

 An eligible child is a child younger than age 17 by the end of 2022;

 The maximum credit is $2,000 per child;

 The credit is non-refundable; and

 The credit is not available in advance.

The Child Tax Credit is a nonrefundable credit that may reduce the taxpayer’s tax up to $2,000 for each of the taxpayer’s qualifying children. Since the Child Tax Credit is a nonrefundable tax credit, it is available in full only to taxpayers whose income tax liability is at least as great as the credit. In addition to having a tax liability, a taxpayer must also have a qualifying child or children to be eligible for a Child Tax Credit. A qualifying child, for purposes of the Child Tax Credit, is a child who:

 Is the taxpayer’s son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendent of any of them;

 Was under age 17 at the end of the tax year;

 Did not provide more than one half of his or her own support during the year;

 Lived with the taxpayer for more than half of the year;

 Is claimed as a dependent on the taxpayer’s return;

 Does not file a joint return for the year, or files it only as a claim for refund; and

 Was a U.S. citizen, a U.S. national, or a resident of the United States.

Child Tax Credit Phaseout and Nonrefundable Amounts

Although the maximum amount of Child Tax Credit a taxpayer may claim for each qualifying child is $2,000, that amount may be reduced if:

 The amount of the tax liability shown on the taxpayer’s Form 1040, Form 1040-SR or Form 1040-NR is less than the credit; or

 The taxpayer’s modified adjusted gross income9 is more than –

o $400,000 if married filing jointly, or

o $200,000 if filing as other than married filing jointly.

Additional Child Tax Credit

The Additional Child Tax Credit (ACTC), unlike the Child Tax Credit (CTC), is a refundable tax credit meaning that the taxpayer may claim the credit even though he or she has no federal income tax liability. The ACTC— a tax credit that may not exceed a maximum amount of $1,500 per qualifying child—is available only to taxpayers who receive less than the full amount of the CTC. (Note: only the CTC may be used to figure the amount of any ACTC that can be claimed by a taxpayer; the ODC is not taken into account for purposes of figuring the ACTC.)

A taxpayer that files IRS Form 2555, Foreign Earned Income, is ineligible to claim the ACTC.

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Child and Dependent Tax Credit