If you have children and a low tax bill, you may need IRS Form 8812 to claim all of your child tax credit. Here are the details.
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For tax years prior to 2018, federal tax law allows you to claim a child tax credit of up to $1,000 for each qualifying child you claim as a dependent on your tax return. If the total credit amount for all qualifying children exceeds the amount of tax you owe for the year, the IRS requires you to prepare IRS Form 8812 to calculate an alternative refundable credit called the “additional child tax credit.”
Beginning in 2018, the Child Tax Credit doubled to $2,000 per qualifying child and up to $1,400 of this amount is refundable through the Additional Child Tax Credit.
Qualifying children requirement
Before you can claim the additional child tax credit on Form 8812, you must evaluate whether your dependents meet all qualifying child requirements of the original child tax credit. The child can be your son, daughter, blood or step sibling, stepchild, foster child or the descendants of any of them, such as a niece or grandchild.
The child must not reach the age of 17 at any time during the tax year or provide more than half of their own financial support. Finally, each child you claim a credit for must have lived with you for more than half of the tax year. However, even if the child satisfies all of those requirements, you may not claim the credit unless you actually claim an exemption for each of them on your tax return; the mere eligibility to claim the child is insufficient.
Exceptions to qualifying child requirement
The IRS provides some exceptions to the requirement that the child reside with you for more than half of the tax year. These include any child that was born and also died within the same tax year, as long as your home was the child’s home while they were alive.
In addition, the IRS treats your child as living with you during periods they are away at school or in a juvenile detention facility, when you are away on business, receiving medical treatment or on active duty in the military. A noncustodial parent may also claim the credit if the custodial parent agrees not to claim the credit or an exemption for the child.
If you meet all other requirements but the amount of tax you owe at the end of the year is either zero or an amount that is less than the credit, you cannot claim the full child tax credit of $2,000; however, you may be eligible for the reduced additional child tax credit if you complete IRS Form 8812.
For most taxpayers, the credit is also subject to a reduction if you have adjusted gross income in excess of the threshold that applies to your filing status. For example, if you file as a single, head of household, married filing separately, or qualifying widow(er) taxpayer for the 2020 tax year and have more than $200,000 in adjusted gross income ($400,000 for joint filers), the reduction increases as the amount exceeding the limit increases.
You must have earned income
When you prepare IRS Form 8812 and calculate the child tax credit you are eligible for, you must calculate the amount of your gross income that you earn. Essentially, this includes income you receive from work or by actively engaging in a business. It does not include most of the taxable income you earn from investing such as the interest from a savings account or the profit you earn from trading stocks during the year.
The Consolidated Appropriations Act (CAA) was signed into law on December 27, 2020 as a stimulus measure to provide relief to those affected by the pandemic. For tax year 2020, The CAA allows taxpayers to use their 2019 earned income if it was higher than their 2020 earned income in calculating the Additional Child Tax Credit (ACTC) as well as the Earned Income Tax Credit (EITC).
Remember, when you prepare your taxes with TurboTax, we’ll determine whether you qualify for the additional child tax credit, and fill in all the right forms for you. All you need to do is answer simple questions about your income and dependents.