A tax credit worth up to $3,600 for each child under the age of six and $3,000 for each child between the ages of six and seventeen helps cover the costs of raising children. Half of your credit can be obtained through regular payments in 2021, and the other half can be obtained through filing a tax return in 2022.
What Is A Child Tax Credit?
The American Government offers a Special Tax Credit Benefit to every taxpayer, provided he has a qualifying dependent child. The idea behind this tax credit benefit is to extend help to all taxpayers and support their families as well by reducing a significant portion of the taxpayer’s tax liability on a dollar-for-dollar basis.
This scheme got more popular with the introduction of The American rescue Plan during the pandemic. The rescue plan was enforced as a means to reverse all the economic and health effects caused due to pandemic.
Initially, this rescue plan focussed on extending the compensation provided to unemployment and foreclosing moratoriums but to provide maximum benefits to the taxpayers, the government decided to increase the child tax credit limit and made it fully refundable.
Tax Credit Limit
Depending on the income threshold of the parents, their financial status, and the age of the children the limit of the tax credit was decided. For instance, for children under the age of 6, the maximum tax credit benefit will be $3600 and for children who are under 18 but above 6 years old, a Tax credit benefit of $3000 will be available.
Depending on the marital status and the income made by the couple, the next set of allocations of credit was made. Where the income of the family is less than $150000 and in the case of single parents, less than $112500, a tax credit benefit of $3600 will be made available.
Why This Scheme?
Although the pandemic started two years ago, the entire world is still shaken by the aftermath of the coronavirus. In the past two years, the world has experienced deaths like never before and the fear of getting acquitted by the virus has negatively impacted everyone’s life.
Many have lost their loved ones, many people have lost the breadwinners of the family and many have lost their jobs. Both health-wise and economically wise the entire world has been shaken.
The Government is well aware that this negative impact on the economy will, even more, be burdensome to the upper and lower middle class and low-income group people. If you are a daily wage earner you would have suffered the worst hit of all.
The Government is also aware that all these damages cannot be reversed overnight. Hence it came up with the idea of The American Rescue Plan and expanded the Child Tax Credits.
Normally, before the pandemic, tax credit benefits were available only during the period of filing taxes. You would have normally set off your credit amount with your outstanding liability and paid the balance.
But under the expanded tax credit facility the American government has decided to release monthly tax credits that would help people to meet their day-to-day expenses.
To support every single person, the government has also made the credit refundable so that irrespective of the tax situation, everyone could be qualified for this plan and avail of the benefits of the same.
Allocation Of Credit
The available tax credit will be proportioned on a monthly basis and will be transferred accordingly via a direct deposit mode every single month. These extended credit facilities are currently available for a period of 1 year.
If your child is under 6 years of age, a payment of $300 would be remitted via a direct deposit every single month, totaling $3600 annually. Similarly, if your child is over 6 years of age but under 18, a monthly payment of $250 will be directly deposited totaling $3000 annually.
Slowly, the amount of credit as decided by the IRS before the pandemic hit the world have started surfacing. The amount of credit disbursed has been limited now and the eligibility requirements have also become more stringent.
As compared to the earlier benefits, a registered taxpayer will now be eligible for a claim of $2000 per child as decided by the IRS. The full refund of credit has also been changed to a partial refund in 2022.
Child Tax Credit Eligibility In 2022
If you are having a dependent child under the age of 17 as of the end of 31st December 2022, you are eligible to apply for the 2022 Tax Credit benefit.
You have to mention this child as a dependent on your tax return from 2022 to 2025 to be eligible for this credit. In addition to being listed in your taxpayer return, your dependent child should also live at your residence for a minimum of 6 months to avail of the tax credit benefit.
During the year in which you are claiming the 2022 tax credit benefit, you have to provide for more than 60% of your family’s financial assistance without depending on your dependent child.
Details of your child’s Taxpayer Identification Number and Social Security Number should be listed.
In addition to the above-mentioned basic requirements, a few other eligibility requirements have to be met to avail of the credit benefit.
Adjusted Gross Total Income Limit
If you are filing your return as a standalone your Adjusted Gross Total Income should be less than $200000 and if you are a married person and filing a joint return, your Adjusted Gross total income should be $400000.
If this limit is met, then you will be eligible to claim full credit.
You will still be eligible to claim the credit if your gross total income exceeds the limits prescribed but your credit limit will also be reduced proportionately. Any time your threshold limit crosses by $1000, your credit will be proportionately reduced by $50.
In addition to this, your annual income should be at least $2500 to be eligible for availing of the Tax credit benefit.
This new scheme where the government spreads the tax credit in a 12-month period instead of a lump sum annual payment has resulted in numerous benefits. For instance, there has been a huge decline in the childhood poverty rate, and this reduction approximated around 42%. This Child tax credit benefit provided financial assistance for American families as a whole as it gave them the means to meet their ongoing daily expenses.