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Hoping for the Child Tax Credit? Don’t Wait to File

Hoping for the Child Tax Credit? Don’t Wait to File

In a recent update, the U.S. House of Representatives has approved a bill that has the potential to grant families significant tax benefits. The aim is to strengthen tax breaks, offering substantial financial support to American households and leading to significant savings. Among the many items addressed in the bill is the expansion of the Child Tax Credit (CTC), a tax benefit designed to assist families with the cost of raising children. In this article, we’ll review the details of the CTC expansion and the next steps needed to pass the bill. 

What is the Child Tax Credit? 

The Child Tax Credit is a tax benefit provided to eligible families for each qualifying child under 17. It’s designed to help families with the cost of raising children by reducing their federal income tax liability. Eligible families can receive a credit of up to a certain amount per child. The amount may vary depending on factors such as income level and number of children. In some cases, the credit is partially refundable, meaning that families may receive a refund even if they owe no taxes. 

Eligibility Criteria  

The eligibility requirements for the Child Tax Credit (CTC) typically include the following criteria: 

  1. Age of Child: The child must be under the age of 17 at the end of the tax year for which the credit is being claimed. 
  1. Relationship: The child must be the taxpayer’s son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them (such as a grandchild, niece, or nephew). 
  1. Dependent Status: The child must qualify as a dependent on the taxpayer’s federal income tax return. 
  1. Residency: The child must have lived with the taxpayer for more than half of the tax year. Certain exceptions apply for temporary absences, such as for school, vacation, medical care, or military service. 
  1. Citizenship: The child must be a U.S. citizen, U.S. national, or resident alien. 
  1. Support: The child must not provide more than half of their own support during the tax year. 
  1. Filing Status: The taxpayer must file as Single, Head of Household, Married Filing Jointly, or Qualifying Widow(er) with Dependent Child. 
  1. Income Limits: The taxpayer must have earned at least $2,500 but not more than $200,000 ($400,000 if filing jointly) to claim the full tax credit. Income over this amount will result in a partial credit. 

Proposed Expansion 

Under the proposed changes, the tax credit would remain fixed at $2,000 per child. However, the portion of the credit that is refundable would see an increase, potentially benefiting numerous families nationwide. The maximum refundable portion per child would rise from $1,600 to $1,800 in 2023, then to $1,900 in 2024, ultimately becoming fully refundable by 2025. Furthermore, the credit would be adjusted annually to account for inflation. When the House of Representatives voted on the bill in January 2023, it passed with overwhelming support from both Democrats and Republicans. The bill is waiting to see a vote from the Senate, which has yet to be scheduled.  

Don’t Wait to File Your 2024 Taxes 

The 2024 tax season is underway. However, the IRS has reported reduced tax filing activity compared to this time last year. That said, there are suspicions that this is because taxpayers are waiting to see what happens with the Child Tax Credit. Taxpayers are urged to file anyway. The IRS has publicly stated that if the Senate does pass the bipartisan bill, it could take anywhere from six to 12 weeks to implement the changes for the 2023 tax year. This means waiting could result in a late tax return, which means penalties and possible interest. Taxpayers can find relief in knowing that the IRS plans to issue additional refunds later for those who have filed if the bill is passed. No additional actions will be needed on the taxpayer’s end.  

Tax Help with the Child Tax Credit 

Taxpayers should not delay filing their taxes while waiting for the Child Tax Credit bill to be passed. It’s crucial to file taxes in a timely manner to avoid potential penalties or late fees. Additionally, the tax filing process can take time. Waiting until the last minute could lead to rushed or incomplete submissions. Furthermore, if the CTC bill is passed, the IRS will make sure eligible taxpayers receive their due refunds. Therefore, taxpayers should proceed with filing their taxes promptly, ensuring accuracy and compliance with current tax regulations, while remaining vigilant for any updates or changes in tax laws that may affect their eligibility for credits or deductions. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.  

If You Need Tax Help, Contact Us Today for a Free Consultation 

Claiming the Child and Dependent Care Credit

dependents and your taxes

Claiming a dependent on your tax return can help save a lot of money each year. Some taxpayers may be unsure about who qualifies as a dependent. This is especially true if a living situation can change year to year. Here’s all you need to know about dependents and your taxes, including how to claim the Child and Dependent Care Credit and others to reduce your tax liability. 

What is a dependent? 

A dependent is someone you can claim on your tax return because they rely on your financial support. While you cannot claim yourself or your spouse as a dependent, you can claim your children, relatives, or domestic partners as dependents. This is as long as they meet the requirements for a qualifying child test and qualifying relative test. All dependents must be a U.S. citizen or resident. They also cannot be claimed on another return or file a joint return. 

What is the qualifying child test? 

A qualifying child must one of the following relationships to you: 

  • Son, daughter, or stepchild 
  • Eligible foster child or adopted child 
  • Brother, sister, half-brother, or half-sister 
  • Stepbrother or stepsister 
  • An offspring of any of the above 

They must be under age 19, or age 24 if they attend school full time. Permanently and totally disabled children can be claimed at any age. The child must live with you for most of the year. You must also provide more than half of their financial support. 

What is the qualifying relative test? 

You might also be able to claim qualifying relatives in your life if they lived with you all year long. You can claim someone who has not lived with you all year if they are: 

  • Your child, stepchild, adopted child, foster child, or descendant of any of these 
  • Your brother, sister, half-brother, half-sister, stepbrother, or stepsister 
  • Your parent, stepparent, or grandparent 
  • Your niece or nephew of your sibling or half-sibling 
  • Your aunt or uncle 
  • Your immediate in-laws, including son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law 

They cannot have made more than $4,700 in 2023. In addition, you must have provided more than half of their total support.  

What is the Child and Dependent Care Credit? 

The Child and Dependent Care Credit is a tax credit provided by the federal government to help working individuals and families offset some of the costs associated with childcare or the care of qualifying dependents. This credit is designed to make it more affordable for parents or caregivers to work or look for work while ensuring that their children or dependents are well taken care of. 

To qualify for the credit, you must meet certain criteria, including having dependent children under the age of 13, or dependent adults who are physically or mentally incapable of caring for themselves. The credit is calculated as a percentage of your qualifying expenses, and this percentage can vary based on your earned income. Generally, the credit covers 20% to 35% of eligible expenses, up to $3,000 for single individuals and $6,000 for two or more individuals. 

Qualified expenses include costs associated with daycare centers, babysitters, nannies, after-school programs, and certain summer camps. Expenses related to overnight camps typically do not qualify. One important thing to note is that if you are married, you must file a joint income tax return to claim this credit. There are several special rules that apply to dependents who will turn 13 during the tax year, newborn dependents, and children of divorced or separated parents. Taxpayers should reference IRS Publication 503, Child and Dependent Care Expenses, for more information. 

What other deductions and credits are available for dependents? 

  • Child Tax Credit: The CTC is $2,000 per qualifying child under age 17 in 2023 
  • Earned Income Tax Credit: While you don’t need children to claim the EITC, the credit does increase if you have children. For tax year 2023, you can claim a max credit of $3,995 for one child, $6,604 for two children, and $7,430 for three or more children.  
  • Adoption Credit: In 2023, you may claim a nonrefundable credit up to $15,950 of expenses that pay for the adoption of a child who is not your stepchild.  
  • Higher Education Credits: The American Opportunity Tax Credit and Lifetime Learning Credit can be claimed for yourself, your spouse, or dependents who are enrolled in college, vocational school, or job training. You can get a maximum annual credit of $2,500 per eligible student with the American Opportunity Tax Credit in 2023. The Lifetime Learning Credit allows a credit of 20% of the first $10,000 in qualified education expenses, and a maximum of $2,000 per tax return. 
  • Credit for Other Dependents: This nonrefundable credit allows a maximum credit of $500 for each dependent. 

Tax Relief for Those with Dependents 

Knowing the rules surrounding dependents and taxes is very important. Claiming someone on your tax return when they are not eligible can result in the IRS rejecting your return or an IRS audit. On the other hand, knowing these rules can help save money if you suddenly become financially responsible for another person, like a sick parent or a foster child. Optima Tax Relief can help with your tax debt situation.

If You Need Tax Help, Contact Us Today for a Free Consultation