Tax deductions and credits are now the only way to reduce your tax bill. Since exemptions are no longer a thing, your only reliability is these. Unlike exemptions or deductions, a tax credit has a dollar to dollar value. Which means it doesn’t reduce your taxable income. Instead, credits lower your total tax bill.
So any tax credit has more value than deductions or exemptions. For 2020, the Child Tax Credit remains the same at $2,000. It is still the same amount after the Tax Cuts and Jobs Act of 2017 was passed. The best part about this credit is that as much as $1,400 of it is refundable. This means even if your tax liability is $0, you can get a $1,400 in your tax refund. Also, it boosts your tax refund.
How to Qualify for Child Tax Credit
There are a few requirements for the child tax credit for both the parent(s) and children. If you’re filing your taxes jointly, your modified gross income cannot exceed $400,000. This phaseout is $200,000 for all other filers.
The child, on the other hand, has to pass six ”tests”. Here are the requirements for the child.
- Age: The qualifying child must be under the age of 17 at the end of the tax year to claim the credit.
- Relationship: The qualifying child must be directly related to you. So the child must be your own child, foster child, stepchild, adopted child, brother, sister, niece, nephew, stepbrother, stepsister, etc.
- Support: The qualifying child must not provide more than half of her or his support for that tax year.
- Dependent: The qualifying child must be claimed as dependent on your tax return.
- Citizenship: The qualifying child must be a U.S. citizen, U.S. National, or U.S. Resident Alien.
- Residence: The qualifying child must be living with you or have lived with your more than half of the tax year.
Once all of the requirements are met, you can claim a child tax credit for each eligible child.