The financial burden of caregiving can be overwhelming. Family caregivers often face decreased productivity or complete withdrawal from the workforce and associated income. Caregivers can incur significant out-of-pocket expenses for medical care, home modifications, assisted living, or other supportive services. Family caregiver pay rarely covers all the financial and emotional costs of care. In addition, the physical and emotional toll of caring for a loved one can result in lost wages and diminished retirement savings. How can families cope? Finding ways to offset tax burdens and earn credits can help with family finances.
The Child Tax Credit (CTC) is a tax credit of up to $2,000 for each qualified dependent child. It is available to taxpayers with at least one dependent child under 17 and meets other requirements determined by the Internal Revenue Service (IRS). The credit is refundable and phases out as adjusted gross income rises.
This credit reduces your federal tax bill and can even result in a refund. The refund can come via direct deposit or mail. Depending on family income, caregivers can claim the Additional Child Tax Credit, which offers an even larger refund. While most family caregivers cannot earn a Child Tax Credit for eldercare, they might be eligible for the Additional Child Tax Credit. Family caregivers who care for disabled adult children may qualify for the total Child Tax Credit.
The CTC was established in the 1997 Taxpayer Relief Act and structured as a non-refundable credit of $500 per child to offer tax relief to middle- and upper-middle-income families. In 2001, the CTC was aligned with the Earned Income Tax Credit (EITC), increased to $1,000 per child, and made partially refundable. The refundable portion is referred to as the Additional Child Tax Credit (ACTC). The availability and amount of the credit were further expanded in 2008 and 2009 to help lower-income households become eligible. The income threshold increased again in 2012, and the refund threshold was lowered in 2015.
In 2017, the Tax Cuts and Jobs Act (TCJA) doubled the child tax credit to $2,000, increased the refundable credit maximum to $1,400 per child, increased the income level at which the credit phases out, and reduced the threshold for the refundable credit. These changes will expire on December 31, 2025.
The American Rescue Plan (ARP) Act of 2021 temporarily expanded the CTC for the tax year of 2021, increasing the credit to $3,000 per child (and even higher for children under age 6), extending the credit to 17 year-olds, and making the CTC fully refundable to all families, including those with low or no incomes.
The CTC was temporarily expanded in 2021 by the American Rescue Plan Act of 2021 The changes included:
These enhancements all expired on December 31, 2021.
To be a qualifying child for the 2023 tax year, your dependent generally must:
While a disabled child over the age of 16 does not qualify for the Child Tax Credit, you may still qualify for certain other credits and deductions:
To apply for the Child Tax Credit, fill out IRS Form 1040 or 1040-SR and include Schedule 8812. You may need to provide ample proof and documentation, and the IRS may require additional information regarding income or residency. Once eligible, the credit will be applied to your overall tax burden. If the amount covers the taxes owed, The IRS will send the remaining refund via direct deposit or U.S. mail. In general, direct deposit tax refunds arrive sooner.
Once you complete the appropriate form, and calculate your taxable income, then you can use the tax credit calculator provided by the Internal Revenue Service (IRS) to determine the amount of the credit you are eligible to receive.
