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Child Tax Credit (CTC)

Temporary changes made to the nations tax laws as part of a coronavirus relief package in 2021, resulted in many Americans receiving additional Child Tax Credit relief in monthly payments. For the year 2023, these credits have gone through a reset.
Before we dive into the changes, let us understand what a Child Tax Credit (CTC) means for us.

What is the Child Tax Credit?
As the name suggests, it is a tax credit designed to help taxpayers support their families. This credit helps families of a qualified dependent child to reduce their tax liability.
Here’s some key items for taxpayers to consider before they file next year.

Who Can get Child Tax Credit?
Eligibility for the CTC needs to go through few eligibility tests as below.
1. Age Test: The child was under age 18 at the end of the tax year. The CTC is increased for children under age 6.
2. Relationship Test: The child is your daughter, son, stepchild, foster child, adopted child, brother, sister, stepbrother, stepsister, half-sister or half-brother. The child can also be the direct descendant of any of those just mentioned (your grandchild, niece or nephew).
3. Support Test: The child did not provide more than half of their own support for the tax year. The child also cannot file a joint return that year.
4. Dependent Test: The child must be claimed as your dependent on your federal tax return.
5. Citizen and Resident Test: The child has to be a U.S. citizen, a U.S. national or a U.S. resident alien. The child must also have a Social Security number.
6. Residency Test: The child must have lived with you for more than half of the tax year.
7. Income Test: CTC begins phasing out for families with income above $200,000 (single filers) or $400,000 (joint filers).

How much is the Child Tax Credit and what changed in 2023?

Tax credits return to 2019 levels.

The Child Tax Credit is now reverted to $2,000 per qualifying child and the $300 advance monthly payments will be no longer available.

The credit amount is reduced from $3,600 per dependent in 2021 to $2,000 for the tax year 2022.

Sangeeta Goyal