This year the IRS has expanded due diligence questions concerning the Child Tax Credit to make sure that taxpayers and their children qualify for the credit. Here is a short guide to help tax professionals navigate this important credit.
Amount: The Child Tax Credit may help reduce federal income tax by $1,000 for each qualifying child claimed.
Additional Child Tax Credit: If the client qualifies for Child Tax Credit but gets less than the full amount, they could receive a refund, even if they owe no tax, through the Additional Child Tax Credit. This year, tax returns claiming Earned Income Credit and Additional Child Tax Credit that have refunds will be held by the IRS until February 15th.
Qualifications: There are many tests that the child must pass to qualify for the credit, including:
- The child must be under age 17 at the end of the year.
- The child must be the dependent and relative of the client.
- The child cannot file a joint return for the year, unless they are filing only to get a refund.
There are several other qualifications as well. For more information on special rules and limitations for the Child Tax Credit, please visit www.irs.gov.
To find the expanded due diligence questions in the Taxware Systems software, fill out the basic information on a client and click “Line Input” on the left hand side. Once there, you will see the Form 1040. On the far left above the automatic calculations is a large button with Due Diligence and a red X. Click on the button and the questions that need to be answered will be in red. Once those questions are answered, a green check mark will appear if the client qualifies for the credit.
Schedule 8812: If the client qualifies to claim the Child Tax Credit, make sure to check whether they need to fill out Form 8812. The same also goes for the Additional Child Tax Credit; the client will need to fill out Form 8812.
If you have questions, feel free to contact us!