The Child Tax Credit (CTC) has been a staple in American families, helping them finance the expenses of having a child. But what happens when your child finally reaches the doors of adulthood?
As your child grows older, you slowly lose access to the child tax credit. This can create financial challenges for you and your family. So, understanding this transition and planning accordingly can make a significant difference in maintaining financial stability.
Understanding Child Tax Credit
There are eligibility requirements in order for a taxpayer to claim the child tax credit for their child. Here are the following:
- Income Thresholds: Your yearly income must be $400,000 or less for married couples filing jointly or $200,000 or less for single parents and couples filing separately.
- Age Requirement: Your child must be under 17 years old for the calendar year.
- Relationship: The child must be your biological child, stepchild, foster child, sibling (or step/half-sibling), or descendant, such as a grandchild, niece, or nephew.
- Residency: You and the child must live together for more than 6 months.
- Social Security Number (SSN): The child must have a valid SSN and be listed as a dependent on your tax return.
It is crucial to meet the requirements to claim the credit, and as your child reaches an age exceeding it, you cannot further enjoy the tax break. But there are exceptions to why the child tax credit stops at 17
Exceptions to the Age Limit
There are limited exceptions to the CTC’s age requirement:
Children with Disabilities: If the child has a qualifying disability, you may still receive additional financial support even after they turn 17.
A qualifying disability in this context should meet specific criteria set by the tax authorities. It includes the following:
- Permanent or Long-Term Condition: The disability should be permanent or expected to last for at least 12 consecutive months.
- Severe Impairment: It should significantly limit one or more major life activities, such as walking, speaking, learning, or performing basic tasks.
- Medical Documentation: The disability must be verified by a medical professional and documented, often requiring records such as diagnosis, treatment history, or special needs evaluations.
Adopted or Non-Biological Children: If you care for an adopted child, you may qualify for specific credits under alternative IRS rules.
You can use tools like the Child Tax Credit Calculator to estimate how changes in your eligibility for the CTC might impact your finances and identify other potential tax benefits.
Tax Credit Variations for Older Children
When a child turns 17, there are other tax credits that you can claim, and some doors might open when the child reaches a certain position in life. Here are some of the alternative credits you can be eligible for:
- Credit for Other Dependents: Applicable for children 17 and older with up to $500 per dependent.
- American Opportunity Tax Credit (AOTC): Education credit for your child entering higher education covering tuition and other expenses.
- Lifetime Learning Credit (LLC): Another education credit for students entering undergraduate, graduate, and professional degree courses.
- Child and Dependent Care Credit: For children with qualifying disabilities to help you offset the expenses for your child while you look for work.
- Earned Income Tax Credit (EITC): For working families under a specific income threshold, this tax credit is refundable and depends on the number of children.
Looking at your child’s future
Preparing for your child’s future is crucial as a parent to ensure your child can thrive in early adulthood. Here are some of the things you can do for your child in the near future:
Plan for Long-Term Financial Stability: Start by building an emergency fund for unexpected expenses and developing a tax strategy that takes advantage of other credits or deductions.
Adjusting your budget: You need to factor in the loss of the CTC when planning your annual budget to avoid surprises at tax time. Also, consider getting a part-time job for yourself or even for your child. It practices financial responsibility and supports family dynamics.
Invest in Education: When your child enters a college or university, make use of education-related tax credits or scholarships to offset higher education costs.
Seek Professional Tax Advice: All of these can be overwhelming, particularly when transitioning out of eligibility for the CTC. Planning and navigating with a tax advisor can help you optimize your overall tax strategy for the coming years and ensure compliance with the IRS for your protection.
Considerations for Non-Resident Parents
Non-resident parents can also claim CTC, but it comes with challenges. There is also a set of requirements they need to complete other than the stated above to be able to claim the Additional Child Tax Credit.
Non-resident requirements
- Child’s Eligibility: The child must reside in the U.S. for more than half the year and should be a US citizen, national, or resident alien with a valid Social Security Number (SSN).
- Parent’s Eligibility: Your filing status should strictly be “married filing jointly,” and you need to file a US federal tax return, even while living abroad.