Tax Credits for Children: Who is Eligible and How to Apply
Additional Child Tax Credit (ACTC): A Comprehensive Guide
The Additional Child Tax Credit (ACTC) is a valuable benefit for parents and caregivers with dependent children under the age of 17. This credit can help offset a portion of the expenses associated with raising children.
To be eligible for the ACTC, parents or caregivers must have an earned income of at least $2,500 or have three or more qualifying dependents. Earned income typically means money from jobs or self-employment, not passive sources such as dividends, pensions, welfare, or unemployment.
The IRS calculates the ACTC by multiplying earned income above $2,500 by 15%. For example, if a parent has earned income of $5,000, the ACTC would be calculated as follows: ($5,000 - $2,500) x 15% = $375.
It's important to note that if filing jointly, the partner cannot exclude foreign-earned income from taxes by filing Form 2555 or Form 2555-EZ.
The maximum refund for the 2025 tax year for the ACTC is capped at $1,700 per qualifying dependent. This means that even if a family has multiple children, the maximum refund they can receive is $1,700 per child.
The child tax credit is reduced for income exceeding the Modified Adjusted Gross Income (MAGI) limits. The MAGI limit for the full child tax credit is $400,000 for married filing jointly and $200,000 for all other filers.
Beginning in 2025, the taxpayer claiming the credit (or at least one spouse if filing jointly) must have a valid Social Security number.
The ACTC can be claimed on the annual tax return, and most quality tax software, such as TurboTax and Credit Karma Tax, will guide users through the process. The IRS also offers free tax software through IRS Free File for taxpayers with income below a certain threshold.
It's worth mentioning that the IRS can't release a refund for a return claiming the additional child tax credit until mid-February.
The child you're claiming as a dependent must be a relative or a descendant of a relative. This means that foster children, stepchildren, and adopted children can also qualify as dependents for the ACTC.
The maximum child tax credit amount is $2,200 per child in 2025. However, if the total credit exceeds the tax liability, the excess amount is refundable as the ACTC, up to a maximum of $1,700 per qualifying dependent.
In conclusion, the ACTC is a valuable benefit for parents and caregivers, helping to offset the expenses associated with raising children. To maximise the benefits, it's important to understand the eligibility criteria, calculation methods, and MAGI limits.
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