The federal government created the Child Tax Credit (CTC) to help families with dependent children recover a portion of childcare costs.
But, parents aren’t the only ones that stand to gain from these tax credit expansions—small businesses and their owners can benefit from them, too. Keep reading to find out how.
What’s a tax credit?
Tax credits reduce the amount of taxes you owe; you simply subtract the tax credit amount from your tax liability.
What is the Child and Dependent Care Tax Credit?
First, let’s review what a tax credit is: A tax credits reduces the amount of taxes you owe; you simply subtract the tax credit amount from your tax liability.
Since the late ’90s, the Child Tax Credit has helped millions of American parents raise their families. As a tax credit, it decreases a taxpayer’s tax liability on a dollar-for-dollar basis for every qualifying dependent child.
Who qualifies for the Child and Dependent Care Tax Credit?
Every qualifying child must:
Be related to you
Be a US citizen, national, or resident alien
Be under the age of 17 by the end of the 2024 tax year
Have a Social Security Number
Live with you for six months or more during the year
Not have provided over half of their financial support during the year
Be claimed as a dependent on your tax return
To receive the credit, the IRS requires that you include the name, date of birth, and Social Security Number of every child on your tax return.
To qualify for the $3,000 tax credit, children must be between six and 17 years of age on December 31, 2021. For the $3,600 tax credit, children must be five years old or younger on that date.
The tax credit now phases out for:
Single filers with an AGI over $75,000
Head of household filers with an AGI over $112,500
Married couples filing jointly with an AGI over $400,000
Why does this tax credit matter to employers?
Because the Child Tax Credit guarantees a monthly income for parents, the ARPA reduces some of the financial pressure and mental stress placed on working parents so they can focus on their responsibilities while on the job.
The Child Care Tax Credit also ensures that parents can go to work and keep their jobs—saving employers the time, money, and effort needed to fire, hire, and train their replacements.
Commonly asked questions about the Child Tax Credit
Accessing and understanding the tax credit can be confusing, so here are a few frequently asked questions and CTC.
Do you need to take action to access the CTC payments?
No. If you filed taxes, the IRS will use this information to make the payments. 80 percent of recipients will see the tax credit payment deposited directly within their bank accounts, while others may receive a check or debit card in the mail.
How are non-filers (those who don’t file taxes) supposed to access the tax credit payments?
Similar to the way that the IRS created a system online to allow non-filers to receive stimulus payments, they will establish a similar system for these payments.
