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Child Tax Credit: The Rules Keep Changing But It’s Still Valuable

If you’re a parent, you may be confused about the rules for claiming the Child Tax Credit (CTC). The rules and credit amounts have changed significantly over the last six years. This tax break became more generous in 2018 than it was under prior law — and it became even better in 2021 for eligible parents. Even though the enhancements that were available for 2021 have expired, the CTC is still valuable for parents. Here are the current rules.

For tax years 2022 and 2023, the CTC applies to taxpayers with children under the age of 17 (who meet CTC requirements to be ‘’qualifying children’’). A $500 credit for other dependents is available for dependents other than qualifying children.

CTC amount

The CTC is currently $2,000 for each qualifying child under the age of 17. (For tax years after 2025, the CTC will go down to $1,000 per qualifying child, unless Congress acts to extend the higher amount.)

Refundable portion

The refundable portion of the credit is a maximum $1,400 (adjusted annually for inflation) per qualifying child. The earned income threshold for determining the amount of the refundable portion for these years is $2,500. (With a refundable […]

By |2023-02-15T16:27:49+00:00February 15th, 2023|child, tax credit|0 Comments

Investing In The Future With A 529 Education Plan

If you have a child or grandchild who’s going to attend college in the future, you’ve probably heard about qualified tuition programs, also known as 529 plans. These plans, named for the Internal Revenue Code section that provides for them, allow prepayment of higher education costs on a tax-favored basis.

There are two types of programs:

  1. Prepaid plans, which allow you to buy tuition credits or certificates at present tuition rates, even though the beneficiary (child) won’t be starting college for some time; and
  2. Savings plans, which depend on the investment performance of the fund(s) you place your contributions in.

You don’t get a federal income tax deduction for a contribution, but the earnings on the account aren’t taxed while the funds are in the program. (Contributors are eligible for state tax deductions in some states.) You can change the beneficiary or roll over the funds in the program to another plan for the same or a different beneficiary without income tax consequences.

Distributions from the program are tax-free up to the amount of the student’s “qualified higher education expenses.” These include tuition (including up to $10,000 in tuition for an elementary or secondary public, […]

By |2022-10-04T19:42:14+00:00October 4th, 2022|child, college tax credit, education credit|0 Comments

The Kiddie Tax: Does It Affect Your Family?

Many people wonder how they can save taxes by transferring assets into their children’s names. This tax strategy is called income shifting. It seeks to take income out of your higher tax bracket and place it in the lower tax brackets of your children.

While some tax savings are available through this approach, the “kiddie tax” rules impose substantial limitations if:

  1. The child hasn’t reached age 18 before the close of the tax year, or
  2. The child’s earned income doesn’t exceed half of his or her support and the child is age 18 or is a full-time student age 19 to 23.

The kiddie tax rules apply to your children who are under the cutoff age(s) described above, and who have more than a certain amount of unearned (investment) income for the tax year — $2,300 for 2022. While some tax savings on up to this amount can still be achieved by shifting income to children under the cutoff age, the savings aren’t substantial.

If the kiddie tax rules apply to your children and they have over the prescribed amount of unearned income for the tax year ($2,300 for 2022), they’ll be taxed on that […]

By |2022-08-18T16:10:53+00:00August 18th, 2022|child, tax planning|0 Comments

Scholarships are Usually Tax Free But They May Result in Taxable Income

If your child is fortunate enough to be awarded a scholarship, you may wonder about the tax implications. Fortunately, scholarships (and fellowships) are generally tax free for students at elementary, middle and high schools, as well as those attending college, graduate school or accredited vocational schools. It doesn’t matter if the scholarship makes a direct payment to the individual or reduces tuition.

Requirements for tax-free treatment

However, scholarships are not always tax free. Certain conditions must be satisfied. A scholarship is tax free only to the extent it’s used to pay for:

  • Tuition and fees required to attend the school and
  • Fees, books, supplies and equipment required of all students in a particular course.

For example, expenses that don’t qualify include the cost of room and board, travel, research and clerical help.

To the extent a scholarship award isn’t used for qualifying items, it’s taxable. The recipient is responsible for establishing how much of an award is used to pay for tuition and eligible expenses. Maintain records (such as copies of bills, receipts and cancelled checks) that reflect the use of the scholarship money.

Payment for services doesn’t qualify

Subject to limited exceptions, a scholarship isn’t tax free […]

By |2021-08-16T19:19:22+00:00August 16th, 2021|child, scholarship, tax implications, tax planning|0 Comments

2021 Child Tax Credit and Advance Child Tax Credit Portal Opens

IRS announces two new online tools to help families manage Child Tax Credit payments

  • Child Tax Credit Eligibility Assistant helps families determine whether they qualify for Child Tax Credit payments
  • Update Portal helps families monitor and manage Child Tax Credit payments 

The Internal Revenue Service launched two new online tools designed to help families manage and monitor the advance monthly payments of Child Tax Credits under the American Rescue Plan. These two new tools are in addition to the Non-filer Sign-up Tool, announced last week, which helps families not normally required to file an income tax return to quickly register for the Child Tax Credit.

The new Child Tax Credit Eligibility Assistant allows families to answer a series of questions to quickly determine whether they qualify for the advance credit.

The Child Tax Credit Update Portal allows families to verify their eligibility for the payments and if they choose to, unenroll, or opt out from receiving the monthly payments so they can receive a lump sum when they file their tax return next year. This secure, password-protected tool is available to any eligible family with internet access and a smart phone or computer. […]

By |2021-07-08T19:58:44+00:00July 8th, 2021|child, covid-19, tax credit|0 Comments
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