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Child Tax Credit: What It Is and How to Claim

Gavin Oxley03 Aug 2021

The child tax credit is a tax benefit granted to American taxpayers for each qualifying dependent child. Taking advantage of the child tax credit each year can be important to support you and your family members each year. Money received from the child tax credit can be put towards food, housing, and insurance premiums.

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What the Child Tax Credit Is

The Child Tax Credit is a federal tax relief initiative that decreases taxpayer liability by a certain increment per child registered as a dependent of their parents. This credit is only available for low to middle-income families and is phased out for higher-income families. The high-income threshold of gross income is $150,000 for a joint tax return (couples).

The usual tax credit received per dependent child (under the age of 17) is $2,000. Because of the hardships of COVID-19, the tax credit received was increased to $3,000 for children under age 18 and $3,600 for children under age 6 for the fiscal year of 2021. 

Under the current federal administration, all Child Tax Credits are now refundable. This means that the taxpayer receives all excess credit if the accumulated credit is greater than the accumulated tax owed.

Unless extended by legislative action or executive order, tax credits will revert to the amount received in 2020. President Biden has proposed the American Families Plan, which will extend the same tax credit from 2021 through the fiscal year 2025.

In 2021, the Internal Revenue Service (IRS) began distributing the tax credits in monthly increments of $250 for dependents under the age of 18 and $300 for dependents under 6. This is known as the Advance Child Tax Credit. These tax credits are often available via direct deposit. 

How to Claim the Child Tax Credit

To qualify for the Child Tax Credit, your children must normally be under the age of 17 and are either legal U.S. citizens, nationals, or resident aliens.

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The IRS offers a tool that can help you determine if your child qualifies for the Child Tax Credit. To use this tool, you will need to know your filing status, the child’s birthday, and whether or not you can claim them as a dependent.

If you were required to file a tax return for 2020, you could claim the Child Tax Credit for returns on the 2020 cycle if you had filed by May 17, 2021. You can file for an extension if necessary. Claiming the tax credit for the 2021 cycle will require filing around the same time in 2022. 

If you are not required to file a 2020 tax return or are not planning to file, you can use the IRS Child Tax Credit Non-filer Sign-up Tool. Note that this option is only available if your main residence is within the United States for more than 6 months.

Individuals are not eligible to use this Non-filer Sign-up Tool if they:

  • Have or plan to file a 2020 tax return,
  • Claimed all dependents on their 2019 tax return,
  • Were married at the end of 2020 unless you use the tool with your spouse and include your spouse’s information,
  • Have a main residence outside of the U.S. (live there for more than 6 months),
  • Or do not have a qualifying child with a valid Social Security number received before May 17, 2021.

If you meet all of the requirements to use the tool, you must gather all of the necessary information beforehand. It would be best if you had on-hand your:

  • Full name
  • Current mailing address
  • Email address
  • Birthday
  • Valid Social Security number (issued before May 17, 2021) for yourself and all claimable dependents
  • Bank account and routing number for tax credit direct deposits
  • Identity Protection Personal Identification Number (IP PIN) issued from the IRS, if applicable

The Additional Child Tax Credit

The Additional Child Tax Credit is no longer in effect from 2018-2025 due to the Tax Cuts and Jobs Act (TCJA). This credit was the refundable portion of the Child Tax Credit and was claimable by parents or guardians who owed fewer taxes than the amount they would receive under the credit.

Child Tax Credit Frequently Asked Questions (FAQs)

The Child Tax Credit is a complex topic, and the recent changes due to the impact of COVID-19 have made it no less complicated. Here we outline some of the most common questions regarding the Child Tax Credit.

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How does custody affect the distribution of the Child Tax Credit?

If the child is claimed under single custody of one parent or guardian, that parent or guardian receives the entirety of the credit. If the parents or guardians have split or joint custody of the child, they must decide who receives the Child Tax Credit that fiscal year. The tax credit cannot be split or given in alternating months. 

Adopted children, foster children, and step-children are also eligible to their parents or guardians to receive the Child Tax Credit. In the case of step-children, only one parent or guardian or set of parents or guardians may receive the tax credit. The tax credit goes to the guardians who financially contribute more during the fiscal year.

If a parent or guardian makes a false claim of dependency, they will be ineligible to file for the Child Tax Credit for 10 years following the fraud.

Are residents of U.S. territories eligible for the Child Tax Credit?

Residents of Puerto Rico are not eligible for the advance but are eligible for the regular Child Tax Credit at the end of the fiscal year. 

If you are a resident of the U.S. Virgin Islands, Guam, or the Northern Mariana Islands, you may be eligible for a regular Child Tax Credit via your independent territory tax agency. This change was established on June 14, 2021.

Residents of any of the Freely Associated States - the Federated States of Micronesia, the Republic of the Marshall Islands, or the Republic of Palau - are not eligible for the Child Tax Credit unless their main residency is within one of the 50 states or the District of Columbia. 

Do dependents over the age of 17 earn a tax credit?

Dependents over the age of 17 are not eligible for the Child Tax Credit but may be eligible for a $500 tax credit. This may include dependent parents or other relatives and some dependents that may not be directly related to the taxpayer.

Bottom Line

Understanding if you are eligible for and how to claim the Child Tax Credit may benefit your current financial situation during the after-effects of COVID-19 or otherwise. The funds you receive from this tax credit can be placed towards essential needs and coverage options that may save you more money in the future.

Using $45 a month per dependent, you can purchase a care membership with Mira and gain discounts on urgent care, prescriptions, and lab testing. Sign up today to use your Child Tax Credit money to further invest in the health and wellbeing of your children.