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Two tax credits may apply to your tax situation if you have children, and one of those will potentially increase if pending tax legislation passes in time for your 2023 return.

Child Tax Credit

The Child Tax Credit applies if you had a child in 2023 that meets these criteria:

  • Has a Social Security number that is valid for employment in the US
  • Was under age 17 at the end of 2023
  • Is your son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of one of these (such as a grandchild, niece or nephew)
  • Provides no more than half of their own financial support during the year
  • Lived with you for more than half the year
  • Is properly claimed as your dependent on your tax return
  • Did not file a joint return with their spouse for the tax year or filed it only to claim a refund of withheld income tax or estimated tax paid
  • Is a US citizen, US national, or US resident alien

The maximum amount of the child tax credit is $2,000 for each qualifying child. You can claim the full amount of the 2023 Child Tax Credit for each qualifying child if you meet all eligibility factors and your annual income does not exceed $200,000 single/$400,000 joint. Parents and guardians with higher incomes may be eligible to claim a partial credit.

More information is available in the Instructions for Schedule 8812, which is the form used to claim the credit.

Changes on the Horizon . . . Maybe?

Enhancements to the Child Tax Credit are part of pending legislation called the Tax Relief for American Families and Workers Act of 2024, which was overwhelmingly approved by the House on January 31, 2024 and is currently under Senate consideration. If passed, those enhancements would affect 2023 tax returns. However, as of this writing, other legislative priorities have arisen that make speedy passage of this bill unlikely, even with previous broad bipartisan support. We’ll keep you posted.

Child and Dependent Care Credit

A similarly-named but completely different credit can be claimed if you pay someone to care for your child (or other qualifying dependent) because you and your spouse work. You may be able to claim the Child and Dependent Care Tax Credit if you pay dependent care expenses for a qualifying dependent who is:

  • A child under the age of 13
  • A spouse or dependent of any age who is incapable of self-care
  • Who lives with you for more than half the year

The credit is calculated based on your income and a percentage of expenses that you incur for the care of qualifying persons to enable you to go to work, look for work, or attend school.

In order to claim the credit, you must identify the care provider on your tax return, including taxpayer identification number – social security number or EIN. However, if the care provider is a tax-exempt organization such as a church or school, you can enter “Tax-Exempt” in the space for the number. You’re responsible for making a good faith effort to obtain this information in order to claim the tax credit.

More details are available in IRS Publication 503, Child and Dependent Care Expenses.