How The Child Tax Credit Works

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In this video, I break down the “ins” and “outs” of the Child Tax Credit and how to get it. I cover what the tax credit is, why it was made available, the seven requirements, income limits, and what you have to do to get it. • What is the Child Tax Credit? • In short, the Child Tax Credit is intended to offset the many expenses of raising children. The credit offsets your tax liability dollar-for-dollar. • Seven requirements: • 1. Your dependent has to be either your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, half sister, or a descendant of any of them (for example, your grandchild, niece, or nephew), • 2. Your dependent has to have been under age 17 at the end of 2016, • 3. Your dependent did not provide over half of his or her own support for 2016, • 4. Your dependent lived with you for more than half of 2016, • 5. Your dependent is claimed as a dependent on your return, • 6. Your dependent did not file a joint return for the year (or files it only to claim a refund of withheld income tax or estimated tax paid), and • 7. And, finally, your dependent was either a U.S. citizen, a U.S. national, or a U.S. resident alien. • Income limits: • If you’re a married couple filing separately, then the phase out threshold is $55,000. • If you’re filing as single or as head of household, then the phase out threshold is $75,000. • If you’re a married couple filing jointly, then the phase out threshold is $110,000. • Example 1 • Let’s say that you’re married and you’re filing jointly and you and your spouse earned a combined $120K. • That’s going to place you in the 28% tax bracket which means that you’re going to owe roughly $33,600 in taxes. • Now let’s also say that you have two kids and so you can receive a max tax credit of $2K. • However, since you’re married and filing jointly, the phaseout threshold is $110K and so for every thousand over $110K we’re losing $50. Therefore, the maximum credit we can receive is $1500. • So now we apply our tax credit to our tax liability and we’re left owing $32,100. • Example 2 • From working at a hotel, you earned $20K during 2016 therefore your tax rate is about 15% which means that you owe about $3K in taxes. • Let’s say that you have 4 kids which means that you can potentially get a max credit of $4K. • Now because your tax credit is greater than the amount of taxes that you owe, your tax liability is $0. • So in this instance where your tax credit is greater than your tax liability, you can get the remaining tax credit, in this case $1K, by taking advantage of the Additional Child Tax Credit. • The Additional Child Tax Credit is 15% of earned income greater or equal to $3K. • And since we earned $20K from working at a hotel, we’re entitled to an additional child tax credit of 15% of $17K or $2,550. • But since we only have $1K left until we’re maxed out, we don’t get the full $2,550 but only the $1K. • ★★★ APP ★★★ • www.buildyourtomorrow.com • ★★★ SUBSCRIBE TO ME ON YOUTUBE ★★★ • / @buildyourtomorrow • ★★★ FOLLOW ME ★★★ • Facebook: / buildyourtomorrow • Instagram: / _buildyourtomorrow • Twitter: / __byt__ • Resources: • https://www.irs.gov/publications/p972... • https://turbotax.intuit.com/tax-tools... • https://www.irs.gov/pub/irs-prior/p97... • http://www.results.org/issues/child_t...

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