If you’ve recently welcomed or adopted your first child, tackling your taxes might not be at the forefront of your priorities. However, even amid sleepless nights and the challenges of new parenthood, it remains essential to carve out time to complete your tax return.
A bipartisan group of lawmakers recently announced a $78 billion deal that aims to expand corporate tax breaks and enhance the child tax credit. If passed, this plan could put extra money in families’ pockets as early as this year1.
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First of all we should know what is child tax credit ?
The Child Tax Credit is a tax benefit provided by the government to eligible families with dependent children. It is designed to help alleviate the financial burden of raising children.
The rules and regulations regarding the Child Tax Credit can vary based on the country, as tax policies differ between nations.
In the context of the United States, for instance, the Child Tax Credit is a credit that allows eligible families to reduce their federal income tax liability for each qualifying child under the age of 17.
As of my last knowledge update in January 2022, the credit amount was up to $2,000 per child. It’s important to note that tax laws can change, so it’s advisable to consult the latest tax regulations or speak with a tax professional for the most current information.
The Child Tax Credit may be refundable or non-refundable, depending on specific criteria. A refundable credit means that if the credit amount exceeds the taxpayer’s tax liability, they may receive the excess as a refund. This aspect is especially important for low-income families.
To claim the Child Tax Credit, taxpayers typically need to meet certain eligibility criteria, including income thresholds, relationship to the child, and the child’s age. Again, specific details may vary depending on the country and its tax laws.
Key Points on this Article:
- Child Tax Credit Expansion:
- The new proposed child tax credit would be more modest than the pandemic-era one passed in the American Rescue Plan Act.
- It particularly aims to help black, Latino, and American Indian children1.
- Under the deal, Americans would see expanded access to the child tax credit through 2025.
- Larger families would especially benefit, as the new deal changes the way the child tax credit is calculated. Families with multiple children would receive benefits per child, rather than an overall amount.
- The refundability cap (maximum credit per child) would also increase to adjust for inflation: $1,800 in 2023, $1,900 in 2024, and so forth1.
- Families with children who are dependents, under the age of 17, and have a valid Social Security Number for employment in the U.S. are eligible for the child tax credit.
- For extensive eligibility requirements, you can refer to the IRS website1.
- Unlike the previous pandemic-era distribution, the proposed child tax credit would not be distributed through monthly checks.
- Taxpayers would instead claim the child tax credit after filing their federal taxes.
- In summary, this expansion aims to provide much-needed support to families, especially those with children, and alleviate financial burdens. Stay informed and take advantage of these changes to improve your financial well-being!
How much do you get back in taxes for a child in 2023?
Commonly, there’s a belief that having a child will invariably reduce one’s tax obligations or lead to a larger tax refund. However, the impact often hinges on your income level. Those with lower incomes typically qualify for more substantial tax credits and deductions following the addition of a child through birth or adoption.
Adoption tax credit
If you finalized the adoption of a child in 2023, you may be eligible for a credit covering adoption-related expenses, with a potential maximum of $15,950 per child. This encompasses various costs such as adoption-related attorney fees, adoption fees, travel expenses, and more.
To qualify for the full credit, your modified adjusted gross income—typically close to your adjusted gross income—must be below $239,230. Beyond this threshold, the credit gradually phases out and becomes unavailable for those with a modified gross adjusted income of $279,230 or higher.
It’s important to note that the credit is non-refundable, meaning if you don’t have any tax liability, you won’t be able to claim the credit for a direct refund. However, any unused credit can be carried forward to offset your tax liability in subsequent years.
How much is the Child Tax Credit this year? What are the qualifications?
If you welcomed a child in 2023, you may be eligible for the Child Tax Credit, provided your adjusted gross income is $200,000 or less. For those filing a joint return with a spouse, the income threshold is $400,000 or less to qualify for the credit.
EITC | Earned Income Tax Credit
Qualifying for the Earned Income Tax Credit (EITC) is possible with the presence of a child. If you have a single child and your adjusted gross income reached $46,560 (when filing alone) or $53,120 (when filing jointly with a spouse), you may be eligible to claim a refundable tax credit of up to $3,995.
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