Child Tax Credits

Updated for COVID-19 Relief Provisions

Are there tax breaks for having children?

Among all the new and exciting challenges with a new child, you may not have considered how your child will affect your taxes. No worries, it’s nothing but good news.

Even if born on the last day of the year, the IRS counts your child as having lived with you all year—so you get the full value of the tax breaks available to parents.

How much is the Child Tax Credit worth?

New: Due to the American Rescue Plan Act (ARP Act), the Child Tax Credit will bump up in 2021 to $3,000 for children between 6 and 17 and $3,600 for children under 6. Plus, instead of taking that amount once a year when filing, the law directs the IRS to distribute the tax credit in advance—per month, if possible—in increments of $250 or $300 (depending on the age of the child).

The $2,500 earned income requirement has been removed, so unemployed parents can still qualify for the credit. The credit begins phasing out at a rate of $50 for every $1,000 over $75,000 for single filers, $112,500 for heads of household and $150,000 for married couples filing jointly.

You could get an advance on half of your 2021 credit starting in July of 2021 (it’s considered an advance because you typically wouldn’t get a 2021 credit until you file for that year in 2022). The amount would be based on a “reference year”, or the taxpayer’s previous calendar year tax return.

These changes won’t apply to your 2020 Child Tax Credit, however—for your 2020 tax return, the Child Tax Credit is $2,000 for each eligible child dependent. The credit is nonrefundable, meaning it only applies to your liability for the year.

For married filing jointly taxpayers, the credit begins to phase out when AGI is $400,000. For all other taxpayers, the amount is $200,000. This phaseout applies to both credits.

In addition to the requirements for a qualifying child, the child must meet these requirements to qualify for the full $2,000 Child Tax Credit:

• The child has to be under age 17 at the end of the year. If he or she turns 17 on the last day of the year, that child is ineligible for the full $2,000 Child Tax Credit, but would qualify for the $500 Credit for Other Dependents (more on that below).
• You must claim the child as a dependent on your return.
• The child can’t have provided over half of their own support for the year.
• The child must have a Social Security Number.

What is the Credit for Other Dependents?

There is also a $500 Credit for Other Dependents, available for qualifying dependents who don’t meet all the requirements for the Child Tax Credit.

If you file with 1040.com, don’t worry about calculating whether you’ll get one credit or the other—based on info you provide, we’ll make sure you get the one you qualify for.

Additional Child Tax Credit

The Additional Child Tax Credit (ACTC) is one poorly named tax break. The name doesn’t mean it’s a credit for an additional child; it’s an additional credit for a child. This credit is for parents who were not able to claim the full Child Tax Credit because it amounted to more than their tax liability.

When part of the Child Tax Credit is unused, you may be able to get what’s left as a refundable Additional Child Tax Credit. The credit amount is 15% of your taxable earned income in excess of $2,500, with a maximum of $1,400 per qualifying child. The requirements for this tax break are the same as the Child Tax Credit, plus you’ll have to have at least $2,500 in earned income.

Note: Combat pay can count as taxable income to claim the credit.

Filing your taxes and claiming tax breaks for your family is simple with 1040.com

Keeping the filing process easy is what we’re all about—and to file everything you need for your household for just $25, you’ll be well on your way to getting taxes done without the headache. If you haven’t yet, be sure to sign up or log in to get started.

Also see:
Child and Dependent Care
Claiming a Child When You’re Divorced or Separated
Tax Reform 101