If you don't believe the Child Tax Credit (CTC) is calculating correctly, examine the Child Tax Credit and Credit for Other Dependents Worksheet produced with the return. This worksheet shows how the calculation is being made based on the data in the return.
In order for the Child Tax Credit to calculate correctly, double-check following information
Does the child meet the qualifying tests?
- Age as of December 31 is important. Make sure each child's birthdate is accurate so that the program can correctly determine their age.
- Relationship - A Qualifying Child must be a son or daughter, step-son or step-daughter, a nephew or niece, brother or sister, grandchild, or foster child to qualify.
- Dependency - The qualifying child must be listed as a dependent on the return.
- Residency - Child must have lived with the taxpayer more than half the year with a few exceptions outlined in the instructions.
- Support - The taxpayer must provide over half the child's support with a few exceptions outlined in the instructions.
Is the SSN valid?
- A Social Security Card that reads, "Not Valid for Employment" indicates that child is not eligible for the CTC.
- If child's immigration status has changed and they are now a US citizen or permanent resident, then parents need to apply for a new SSN.
- Adopted children must have a valid SSN to qualify for CTC.
Note that dependents with an ITIN are eligible for ODC, not the CTC.
What is amount of total taxes on Form 1040 line 18?
The CTC (and the ODC) is a nonrefundable credit, and the CTC and ODC together reduce tax liability to zero but not lower. A return with no tax liability is not eligible for the CTC. (It may, however, be eligible for the Additional CTC, a refundable credit.)
- Is AGI within allowable limit?
- Is Investment Income within allowable limit?
- Did taxpayer take any exclusions from income that are added back when figuring the CTC?
- What other credits are being claimed that may reduce the CTC?
For 2020 and 2021, taxpayers can elect to use their 2019 earned income to calculate CTC if it is higher.