IRS Publication 972

IRS Publication 972, Child Tax Credit, is a document provided by the Internal Revenue Service (IRS) of the United States that guides taxpayers through the process of claiming the Child Tax Credit (CTC) and the Additional Child Tax Credit (ACTC) on their tax returns. The CTC is a tax credit that helps families with qualifying children receive a tax break, and the ACTC is a refundable credit for taxpayers who do not qualify for the full amount of the CTC.

This publication is an essential resource for taxpayers who want to understand their eligibility, the calculation process, and how to apply the credits to their tax return. Below is a comprehensive overview and details to help you navigate the complexities of these tax credits.

Child Tax Credit (CTC)

The Child Tax Credit is designed to help families reduce their federal tax liability by providing a credit for each qualifying child under the age of 17 at the end of the tax year. In recent years, the tax laws have been updated to increase the amount of the CTC and to adjust the eligibility requirements. As of the latest updates, the credit amount is up to $2,000 per qualifying child.

Eligibility Requirements

To claim the CTC, a taxpayer must meet several eligibility requirements, including:

1. Qualifying Child: The child must be under the age of 17 at the end of the tax year and must meet other criteria such as the relationship, residency, and support tests.

2. Taxpayer Identification Number (TIN): Both the child and the taxpayer must have a valid Social Security Number (SSN) issued by the Social Security Administration by the due date of the tax return, including extensions.

3. Income Limits: The CTC starts to phase out when the taxpayer’s Modified Adjusted Gross Income (MAGI) exceeds certain thresholds. The phase-out threshold begins at $200,000 for single filers and $400,000 for married filing jointly.

Calculation of CTC

The CTC amount per qualifying child is up to $2,000, with up to $1,400 of that amount being potentially refundable as the Additional Child Tax Credit (ACTC). Here’s how to calculate the CTC:

1. Determine the number of qualifying children. Multiply the number of qualifying children by $2,000.

2. Apply phase-out rules. Subtract $50 from the CTC amount for every $1,000 (or portion thereof) over the MAGI threshold.

3. Determine if any portion is refundable. If the CTC amount is more than the tax liability, the excess may be refundable up to $1,400 per child.

Claimed on Tax Returns

Taxpayers claim the CTC by filling out Schedule 8812 (Form 1040) with their federal income tax return. The form guides the taxpayer through the steps of calculating the credit and determining the amount refundable as the ACTC.

Additional Child Tax Credit (ACTC)

The ACTC is a refundable tax credit designed to provide financial assistance to taxpayers who do not receive the full amount of the non-refundable Child Tax Credit. If the CTC exceeds the taxpayer’s total tax liability, part or all of the unused credit may be refundable as the ACTC.

Eligibility Requirements

To be eligible for the ACTC, the taxpayer must:

1. Qualify for the CTC: Only taxpayers who are eligible for the CTC can claim the ACTC.

2. Earned Income Threshold: Have earned income of more than $2,500 for the tax year. The refundable portion of the CTC is determined based on a percentage of earned income above this threshold.

Calculation of ACTC

The ACTC is calculated as the lesser of:

1. The unused portion of the CTC: After reducing the CTC by the amount of the taxpayer’s tax liability.

2. 15% of the taxpayer’s earned income over $2,500.

Taxpayers use Schedule 8812 to calculate and claim the ACTC.

Recent Legislation and Updates

The Child Tax Credit has undergone several significant changes in recent years, notably the enhancements under the Tax Cuts and Jobs Act (TCJA) of 2017 and the American Rescue Plan Act of 2021.

Tax Cuts and Jobs Act (TCJA) of 2017

The TCJA increased the CTC from $1,000 to $2,000 per qualifying child and allowed up to $1,400 of that credit to be refundable. It also introduced higher income thresholds for phase-out.

American Rescue Plan Act of 2021

For the tax year 2021, the American Rescue Plan Act temporarily expanded the CTC, providing:

• An increased credit amount of $3,000 per child ages 6-17 and $3,600 per child under age 6.
• Monthly advance payments of the credit starting mid-2021.
• Full refundability of the credit for 2021.
• Expanded eligibility, including children who turn 17 in 2021.

Taxpayers should refer to IRS Publication 972 for any updates on legislative changes affecting the CTC and ACTC in subsequent years.

Common Q&A

Can I claim the Child Tax Credit for a newborn?

Yes, you can claim the Child Tax Credit for a child born anytime during the tax year as long as they meet all qualifying criteria by the end of the year.

What happens if my CTC exceeds my tax liability?

If your CTC exceeds your tax liability, you may be eligible to receive the remaining credit as a refundable ACTC, subject to limitations and income requirements.

How do I know if my child qualifies for the CTC?

Your child qualifies if they meet several tests, including age, relationship, residency, support, and having a valid SSN. IRS Publication 972 provides detailed guidance on each of these tests.

What is the impact of receiving advance CTC payments in 2021?

If you received advance CTC payments in 2021, you need to reconcile these payments with the actual credit amount on your 2021 tax return. Any excess advance payments may need to be repaid.

How do I access IRS Publication 972?

You can access IRS Publication 972 on the IRS website at IRS Publication 972.

In conclusion, IRS Publication 972 is an essential resource for taxpayers with children who can benefit from the Child Tax Credit and Additional Child Tax Credit. It provides detailed instructions, eligibility criteria, calculation methods, and legislative updates to help taxpayers maximize their tax benefits effectively.