Why does the IRS limit the child tax credit to children under 17
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Table of Contents
Why does the IRS limit the child tax credit to children under 17?
The IRS limits the Child Tax Credit (CTC) to children under 17 because this tax benefit is intended to help families, including US expats in Australia, with younger dependents.
Raising children can be expensive, and the government provides this credit to help with costs such as food, education, and childcare. The age limit ensures that the support is directed toward families with children who are still financially dependent.
What is the ACTC, and can US expats in Australia claim it?
Yes, they can. The Additional Child Tax Credit (ACTC) allows US families in Australia to get a refund if they qualify for the CTC but do not owe enough in taxes to use the full credit.
In other words, if the US$2,000 Child Tax Credit is more than your total tax bill, the IRS may send you part of the remaining amount as a refund.
How much is the ACTC?
The ACTC allows eligible taxpayers to get up to US$1,700 per child as a refund when filing their 2024 tax return.
How does the ACTC work?
- If you owe less in taxes than the full CTC amount, the unused portion may be refunded as the ACTC.
- You must have earned at least US$2,500 to qualify for the refund.
- The IRS calculates your refund based on 15% of your earned income over US$2,500, up to the maximum ACTC amount per child.
What are the ACTC qualifying requirements?
- You must qualify for the Child Tax Credit (CTC): Since the ACTC is an extra benefit for families already eligible for the CTC, you must first meet the Child Tax Credit requirements:
- You must have earned income
- You need to earn at least US$2,500 from a job or self-employment.
- Income from investments, Social Security, or government benefits does not count.
- Your tax bill must be less than your CTC amount
- If you don’t owe enough in taxes to claim the full US$2,000 per child from the Child Tax Credit, the ACTC helps you get some of that money as a refund.
- Your income must be below the limit
The ACTC starts to phase out (get smaller) for higher-income families:- If you are single and earn more than US$200,000, your credit will be reduced.
- If you are married filing jointly and earn more than US$400,000, your credit will also be reduced.
If your income is higher than these limits, you may not qualify for the ACTC.
How do I calculate the ACTC?
The IRS uses a formula to figure out how much ACTC refund you can get.
- Start with your earned income and subtract US$2,500.
- Take 15% of the remaining income—this is your potential ACTC refund.
- The refund is capped at US$1,700 per child (for 2024).
Example 1: Single Parent with One Child
- Earned income: US$15,000
- US$15,000 – US$2,500 = US$12,500
- 15% of US$12,500 = US$1,875
- Since the ACTC max is US$1,700 per child, this parent will get a US$1,700 refund.
Example 2: Married Couple with Two Children
- Earned income: US$30,000
- US$30,000 – US$2,500 = US$27,500
- 15% of US$27,500 = US$4,125
- The ACTC is US$1,700 per child, so the maximum refund for two children is US$3,400.
Check how much child tax credit refund you can claim with our free calculator.
What is the Child Tax Credit (CTC)?
The Child Tax Credit (CTC) is a tax break that helps families with children reduce their tax bill. If you qualify, it can lower the amount of taxes you owe by up to US$2,000 per child.
Who qualifies for the CTC?
To claim the Child Tax Credit, you must meet the following rules:
- The child must be under 17 years old at the end of the tax year.
- The child must be your dependent, meaning they live with you for at least half the year and you financially support them.
- You must be a US taxpayer and the child must have a valid Social Security Number (SSN).
- Your income must be below the limit:
- If you make more than US$200,000 as a single filer or US$400,000 as a married couple, the credit starts to decrease.
What are the most common mistakes when claiming the Additional Child Tax Credit?
Claiming the Additional Child Tax Credit (ACTC) can help families get a tax refund, but mistakes on tax returns can cause delays, reduced refunds, or even rejection by the IRS.
Here are the most common errors people make and how to avoid them:
-
Missing or Incorrect Social Security Numbers (SSN): Ensure your child has an SSN issued before the tax deadline and double-check the number before filing.
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Not Filing Schedule 8812: Always complete and attach Schedule 8812 to your tax return (Form 1040). This form calculates how much of the credit is refundable.
- Earning Too Little or Too Much: You must have earned at least US$2,500 to qualify for the ACTC refund. If your income is too high (US$200,000 for single filers, US$400,000 for joint filers), your credit will start decreasing.
- Claiming Ineligible Children: Your child must be under 17 years old at the end of the tax year, have lived with you for at least six months, and be your dependent and be financially supported by you.
- Filing Taxes Incorrectly: Even if you don’t owe anything, you must file a tax return to claim the ACTC refund.
- Choosing the Wrong Filing Status: Choose the correct filing status, such as “head of household” or “married filing jointly”, based on your situation.
- Not Keeping Proof of Eligibility: Keep records like birth certificates to confirm your child’s age, school or medical records to prove residency, and income statements (W-2 or 1099) to confirm your earnings.
- Math Errors or Typos: Double-check all calculations or hire a tax professional to avoid errors.
Will the Child Tax Credit change in the future?
The Child Tax Credit (CTC) has changed several times, and it may change again in the coming years. Lawmakers continue to discuss possible expansions or reductions, so it’s important to stay informed.
Can US expats in Australia claim the Child Tax Credit?
Yes, US citizens living abroad (expats) can claim the Child Tax Credit (CTC).
Who qualifies for the CTC as an expat?
You can claim the CTC if:
- Your child is under 17 years old at the end of the tax year.
- Your child has a valid Social Security Number (SSN).
- You are a US citizen or green card holder.
- Your child is your dependent and lived with you for at least six months of the year.
How can expats claim the CTC?
- File a US Tax Return (Form 1040)
- Even if you owe no taxes, you must file to claim the credit.
- Complete Schedule 8812
- This form calculates how much of the CTC is refundable.
- Decide Between FEIE or FTC
- If you use the FEIE, you cannot claim the ACTC refund.
- If you use the FTC, you may still get the CTC and a refund.
Does the Foreign Earned Income Exclusion (FEIE) affect the ACTC?
Yes, it does. Claiming the FEIE will make you ineligible for the ACTC refund.
- If you exclude all your income using the FEIE, you will not qualify for the refundable ACTC.
- If you use the Foreign Tax Credit (FTC) instead, you may still claim the CTC and ACTC refund while reducing your US tax bill.
What’s the difference between refundable and non-refundable Child Tax Credits?
The Child Tax Credit (CTC) helps families reduce their tax bill and, in some cases, get a refund. However, there are two parts to the credit: refundable and non-refundable.
What does “non-refundable” mean?
A non-refundable tax credit can reduce your tax bill to zero, but it won’t give you extra money as a refund. If your tax bill is already low, you might not get the full benefit of the credit.
How does this apply to the Child Tax Credit?
- The CTC is worth up to US$2,000 per child.
- But only US$400 to US$1,700 of this amount is refundable (depending on income).
- The rest is non-refundable, meaning it only helps if you owe taxes.
What does “refundable” mean?
A refundable tax credit can reduce your tax bill to zero AND give you extra money as a refund if you qualify. This is especially helpful for families with lower incomes who might not owe much in taxes.
How does this apply to the Child Tax Credit?
- The Additional Child Tax Credit (ACTC) is the refundable part of the Child Tax Credit.
- If your tax bill is already zero, you could still get up to US$1,700 per child as a refund (for 2024).
Why does this matter?
- If you owe taxes → The non-refundable part helps lower what you owe.
- If you don’t owe taxes → The refundable part helps put money back in your pocket.
- If you have low income → You need at least US$2,500 in earned income to qualify for a refund.
Do the different US states offer their own Child Tax Credits?
Yes! Some US states have their own Child Tax Credits to help families save even more on taxes. These state-level credits can be different from the federal Child Tax Credit in how they work.
Which states offer Child Tax Credits?
Some states offer a Child Tax Credit that lowers state taxes, while others provide refunds to families with kids.
Examples of State Child Tax Credits:
- California – Provides up to US$1,000 per child under 6 (Young Child Tax Credit).
- Colorado – Offers a refundable credit worth up to 30% of the federal Child Tax Credit for lower-income families.
- New York – Gives either 33% of the federal Child Tax Credit OR US$100 per child (whichever is higher).
- Vermont – Provides a US$1,000 per child tax credit for families making less than US$125,000 per year.
Each state sets its own rules on who qualifies, how much the credit is worth, and whether it’s refundable.
