Save Big with the Child Tax Credit in 2024

Many potential changes to the Child Tax Credit (CTC) could help provide additional support for families in the United States. A new bill passed by the House of Representatives may increase the tax credit for families in subsequent years so lower-income families can claim the benefit. Here’s what you need to know about this powerful tax credit. 

What is the Child Tax Credit?

The Child Tax Credit (CTC) is a federal tax benefit for families that have dependents. Although this program typically benefits lower income families, you can still benefit if your income is below $200,000. The credit can help to reduce your tax bill and even eliminate your tax bill if your income is low enough.

Moreover, some families may even be eligible for a partial refund of the credit, which is called an additional child tax credit ( ACTC). The CTC and ACTC help provide financial relief to families with dependents. Applicants who are eligible for this tax credit can claim this dependent information on their tax returns.

How Did It Pass?

Congress originally created the Child Tax Credit in 1998, when it began providing a $500 non-refundable benefit for families. Since then, it has improved the program to provide more support for families. Many of these benefits have been extended since the American Tax Cut and Jobs Act in 2017, and there may also be new benefits ahead this year and in future years.

Congress is once again looking at expanding the child tax credit to provide families with more financial relief in 2024 and beyond. The refundable portion of the tax credit may increase to $2,000 by 2025, if this bill moves as planned.

The US House recently voted to pass the Tax Relief for American Families and Workers Act of 2024 Bill. This $78 billion tax package may expand the child tax credit and provide other tax incentives for small businesses in the United States.

Who Qualifies?

If you have a dependent, you may be eligible to apply for a child tax credit. In order to qualify for the 2023 child tax credit, your dependent must meet the following criteria:

If your dependent meets all of these criteria, you should consider applying for this credit. The IRS website has an online tool that you can use to see if you qualify. Your dependent needs to meet the criteria set by the IRS.

Based on 2023 regulations, the current credit is worth up to $2,000 per dependent if your income falls below $200,000. The ACTC, which is the refundable portion of this tax credit, is currently set at $1,600.

The IRS may increase the amount in subsequent years, so that it moves in line with inflation. If your income is above $200,000, you are still eligible for a smaller child tax credit.

How to Claim the Credit

If you want to claim the credit, you will need to add several pieces of information on your 2023 tax return. You do not need to apply for this program, and only need to list the information when you file your 1040 tax return. When you file your taxes, you also need to use Schedule 8812 to determine if you are eligible for child tax credits.

Some people may need to do additional work to receive the child tax credit. If you have not filed taxes because your income is too low, you will need to submit financial information so that the IRS can determine if you are eligible.

The child tax credit is very accessible for many people, and new measures introduced since Covid19 have increased payments and made it easier for families to receive more support. Many families automatically received around $250-300 per month from the American Family Rescue Plan.

How to Maximize Your CTC Savings

If you believe you may be eligible for this tax credit, and have not been taking advantage of it, it may be best to begin by talking with an accountant.

They may be able to tell you if you qualify and are not fully taking advantage of this tax credit. Moreover, there are also 15 different states that offer child tax credits. You may be able to take advantage of federal and state tax credits, depending on where you live.

One group that may not be taking advantage of this rule is individuals who do not file taxes because their income is too low. The original child tax credit laws even required a family member to have $2,500 or more in annual income to be eligible to apply.

However, this law may be removed in the new bill, making it easier for low income families to take advantage of these benefits. Families may be able to use income from previous years, which will allow them to be eligible to apply.

Even if one family member is still working while they live with you, you may still be able to claim them as a dependent. According to the current IRS rules, you can claim them as a dependent if they provide less than 50% of their income.

Finally, it is very important to avoid any errors in the process, as there can be a penalty in the event that you are audited and not compliant. You may need to pay the amount back with interest, and could face a 20% fine. Moreover, the IRS may require you to file a new form, called Form 8862, in order to be eligible to claim a child tax credit in the future.

The Future of the CTC

The future of the Child Tax Credit in the United States appears to be very favorable. Certain individuals who couldn’t apply before may now be eligible, and many people may receive more money in subsequent years. It may be worthwhile to touch base with an accountant to see if you are fully taking advantage of child tax credits when you file taxes this year.

The new bill that is being proposed will increase the child tax credit for families, which would provide additional financial relief for families. The changes are still in progress, and while it may be tempting to delay filing taxes, it is still not certain that there will be any clarity in the short term. New regulations may increase the refundable amount of the tax credit to $1,800 in 2024, and potentially up to $2,000 in subsequent years.

Closing Thoughts on Child Tax Credit 2024

Families with dependents may be able to save more money on their tax bill in subsequent years due to new potential changes to the CTC. If you are providing support for one or more dependents and not currently taking advantage of the CTC, now may be an ideal time to take to an accountant. This step could help you save money on your tax bill and ensure you are compliant when filing.

Our tax pros have decades of experience helping business owners develop game-changing tax strategies. Contact us today for a complimentary one-on-one strategy session with a Tax Hack pro to see how much you can save.

About the Author

Miguel Alexander Centeno

Miguel Alexander Centeno is an author, speaker, and tax leader at Tax Hack Accounting Group. A former Big 4 tax manager, he represents taxpayers in all matters before the IRS, including the U.S. Tax Court. He has been quoted in the Wall Street Journal, Fox Business, and MSNBC on tax related articles and has testified before the U.S. House of Representatives as a part of hearings for the Tax Cuts and Jobs Act. A father of three, Miguel is an avid acoustic guitar player, gravel cyclist and once-a-week yogi.
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