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Child Tax Credit Explained 2020



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in this video I'm gonna talk about the

child tax credit for 20 its wanti now

first I'm gonna go over the rules for

the child tax credit and then we're

gonna answer the question of whether or

not your child qualifies for the child

tax credit or the credit for other

dependents so I'm gonna go through a

walkthrough to help you figure this out

really quickly and simply and then I'm

gonna go over the w-4 why because the

child tax credits on it and if you're

getting the child tax credit you've may

have made this error that I've seen so

much this year already so I want to make

sure that you're getting the biggest

paycheck possible so I'm gonna go into

the w-4 on the child tax credit and then

last but certainly not least if you earn

too much there's a planning technique

that you need to know to make sure you

still qualify for the child tax credit

or the credit for other dependents but

before we do all this if there's your

first time at our channel or you haven't

subscribed click on the subscribe button

at the bottom my name is Travis sickles

certified financial planner helping you

reach your financial goals

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so there's a ton that we're going to

cover in this video so to make it a

little bit easier I'm gonna put the time

codes in the description at the bottom

so you just go ahead and zip right to

the section that you want to watch or go

watch another section come back to it

later whatever you want to do so we're

gonna jump right into it so the child

tax credit is a two thousand dollar

credit that it's a lot of money so it's

very important to understand what this

is so will credit goes against your tax

liability so guess what if you owe the

IRS two thousand dollars as a tax bill a

credit that two thousand dollar credit

will make that tax bill gone so its

dollar for dollar a credit reduces your

tax liability only deduction is a little

different that is your 401k or your

traditional IRA now making those

contributions reduce your taxable income

but it's not as impactful as a credit so

it's very important that you make sure

you get as many credits as possible

because these things are gold so the

child tax credit is two thousand per

child and that's two thousand no matter

if you have one two three four five

doesn't matter how many children you

have

it's two thousand times the amount of

each child so if you have two children

it's four three six so on and so forth

so it is a huge credit a huge amount of

money that you can save on your tax

liability two thousand dollars now it is

a refundable credit so what does that

mean if you don't have a tax liability

you can still get a $1,400 refund for

each child so that is quite a big credit

quite a big deal so you want to make

sure that you're getting this right you

know in order to qualify for this credit

you have to have earned income of at

least twenty five hundred dollars so

that's your w2 income after 1099 income

combat pay which is not taxable so

there's a ton of different types of

income that qualify but it has to be

earned income now in order to qualify

now this is the big one this is the age

test your child has to be 16 or younger

so under the age of 17 and they can't be

17 and this is as of December 31st of

the tax year that you're doing this for

so that is how old they are

that they

they qualify for so it's 16 or younger

if they're 17 doesn't matter they're in

high school they're still living at home

you're still paying for them but guess

what they're in they're not for the

child tax credit it goes under the

credit for other dependents so it's only

$500 and it's not refundable either

really important that you get this right

because if you make a mistake it's

possible that you could get disqualified

moving forward

so even if you do qualify in future

years you can lose that qualification to

use this tax credit because it's such a

big deal to use the child tax credit

because it's saving you a ton of money

the IRS wants to make sure that you're

getting this right and they're getting

their taxes so you want to make sure

that you get the child tax credit done

correctly and it's under the age of 17

on December 31st of the tax year that

you're looking at so you need to make

sure that's done correctly so for 2020

if they're 17 on December 31st of 2020

then guess what they don't qualify

because they're 17 if they're 16 on

December 31st you're caught they qualify

so you're good to go

so it's really important that you get

that done correctly now the other one is

so we have the income limit on the

bottom side which is 2500 so at least

$2,500 worth of earned income now the

income on the high side we're a work

phase work to begins to phase out not

actually phases up begins to phase out

for singles that's going to be 200,000

and for married filing jointly that's

gonna be 400,000 but it's really

important that you understand that that

is the beginning of the phase-out

doesn't phase out at two hundred

thousand and four hundred thousand so

you need to understand that if you are

in those upper end of the income limits

then it's two hundred for singles four

hundred married filing jointly now let's

jump into the qualification test because

there's a whole bunch of different

criteria including the income and

including that age test I talked about

before but if you're questioning whether

or not you qualify for the child tax

credit beyond that then it's a really

good idea just to go through this

walkthrough I'm going to leave a link in

the description at the bottom for this

interactive walk through it forget

exactly what it's called but it's for

the child tax credit and credit for

other dependents so let's go ahead and

jump right in and

throw together so you can see exactly

what it looks like alright so here we go

so does my child dependent qualify for

the child tax credit or the credit for

other dependents and again I'm gonna

leave that link in the description at

the bottom scroll to the bottom and

click begin we're gonna click continue

right there now this is only gonna be

for the 2019 tax year for this

particular walkthrough on the whether or

not your trial qualifies but it will be

the same for 2020 okay so the marital

status so for this walkthrough I'm gonna

do married I am married so I'm gonna

check off married if you're single check

off single

now do you intend to file a return with

your spouse to do and you and your

spouse intend to file a joint tax return

for 2019 I'm gonna check off yes click

continue and here's where you can add

your kids now this is just a calculator

so you do not actually need to put their

names in there you can just go ahead and

put whatever you want and just click on

add and then so I'm gonna put kid 1 if

you have multiple kids just click keep

clicking add so it knows that they're in

there so now on this screen it's gonna

ask whether or not you have a valid

social security number so I'm gonna

check off yes and same for your spouse

so social security number is one of the

requirements your child also needs a

social security number at the time that

you're filing your taxes so if you don't

already have social security number it's

important that you get one now this is

the question where it's asking if in the

prior year was it disallowed for the

credit so it's really looking for the

fraud but it already is determine that

so if you got this allowed the IRS has

already told you that's how you would

know and you can see there for reasons

other than math or clerical because if

you made a silly error and it was just a

math or clerical error

they'll probably forgive you but this

this will already be figured out in

advance so if you don't know that you

qualify at this point probably qualify

because the IRS would tell you so I'm

gonna check off no and click continue

now this is the relationship test it's

going to give you

all the different relations and I am

gonna put biological travel and the

birth date is really important so make

sure that you get this correct so I'm

just gonna go ahead and make this up

2015 no doubt about it that this child

is under 17 so here is the question

where it's asking does the kid this kid

want whatever name you put in there have

a social security number

valid for employment that was issued

before the due date of your return

that's important you need you need to

have the social security for the child

before the due date of the return so

we're gonna check off yes now if that's

not true unfortunately you don't qualify

that's what that's what it would tell

you at the end but it doesn't mean you

don't qualify for anything you might

qualify for credits for other dependents

or are you claiming kid one in this this

walkthrough are you claiming kid one as

a dependent for 2019 yes can you not

take the child tax credit sure you can

pay the IRS as much as you want they'll

take it they'll take the money

citizenship test yes

u.s. citizen next now this one might

trip some people up so if you're looking

at this this is talking about the

residency test that's what this is did

they live with you for more than half

the year the IRS doesn't care much about

anything else any divorce decrees if

you're single they don't really care

about any of that stuff it is according

to them the IRS it's more than half of

the year so it says it right there more

than half the year now this can include

all of these other pieces so if there's

an illness and they're in the hospital

for a couple of months even six months

seven months it doesn't matter all that

time would qualify for the residency

test that they're living with you and so

you wouldn't have an issue their

education if they're away at school they

still qualify business the business one

kind of struck me a little funny but I

don't I don't know maybe you're your

child's uh some sort of a movie star and

they're never home they're just always

traveling they would still qualify

vacation and or military service so it

must be reasonable to assume that the

absent person will return

to the home after the temporary absence

so in this case we're gonna choose yes

they've lived with us for more than half

the year and here on the last green is

your results you can see it right there

in kind of bold not very big but kind of

bold it says kid 1 is a qualifying

person for child tax credit purposes now

why does it say it like that here's why

if you realized it did not ask your

income it just gave you the maximum

amount that you can earn so it doesn't

tell you whether or not you're going to

actually get the child tax credit but it

tells you of whether or not your child

just qualifies for the child tax credit

or the credit for other dependents so it

was asking things like your social

security numbers citizenship to make

sure that they lived with you for more

than half the year all those basic

things to qualify or disqualify from the

child tax credit but they didn't ask

those income questions so let's go ahead

and jump now to the IRS Form w-4 to make

sure you're filling in that out

correctly with the child tax credit and

it's important that you make sure that

you fill it out correctly because if you

qualify for the child tax credit you're

actually gonna get it and you fill it

out on your w-4

then guess what you're going to get a

bigger paycheck because they are

assuming you're getting the child tax

credit which will reduce your total tax

liability if you didn't apply for the

child tax credit on your w-4 and you do

qualify go ahead and fill out a new w-4

and submit it to your employer to

hopefully boost your paycheck so I'm

gonna walk through to serve you exactly

where you should put it on the IRS Form

w-4 and also how you should fill it out

now I'm gonna go through the online

version I do a ton of videos on the IRS

Form w-4 and I can't stress this enough

to use the online version because it's

so much simpler it's gonna be right it's

gonna be accurate it's gonna make your

life so much easier and at the very end

it'll populate all the PDF all the stuff

that you need you need to print it out

and submit it to your employer and

you're good to go

doing the paper versions a lot more work

now I've done some videos on the paper

version exclusively so you can watch

those but let's go ahead and jump into

the online version so I can point out

where ice

the number one mistake with the child

tax credit and people messing it up and

getting smaller paychecks because of it

so let's go ahead and look at that all

right so here is the tax withholding

estimator for your w-4 so scroll right

now click on that blue button use the

tax withholdings estimator now I'm gonna

go through this as fast as possible so

we can see exactly where that tax credit

section which is number five right there

and I'm gonna zip through it I'm not

gonna go through any of the other stuff

except the tax credits so you can just

see exactly how to fill it out so first

I'm gonna go in here I'm gonna go we're

gonna go married filing jointly can

someone else claim you as a dependent on

their tax return no that's important

because if you're claiming somebody you

can't be claimed so that's really

important that you make sure you you get

that section right so no no one else can

claim this on their tax return yes you

have to have a dependent to get the

child tax credit so we're gonna say one

and then we're gonna say yes we have a

job I'm gonna say I have one job spouse

has no job to make this a little bit

easier pension now just for again for

ease of use click Next I'm gonna say yes

to the job we had it all year every two

weeks or twice a month doesn't matter

check off January 1st

oops January 1st there there we go

total wages I'm just gonna put in a

hundred thousand dollars just so we can

see percentage-wise or what not to see

how it works

if I put it down to low you might not

see the credit reflected quite the same

way you would with a hundred thousand

dollars okay 401k no HSA no need to fill

those things out too so this is the

year-to-date withholdings I'm just gonna

put five hundred and one hundred for my

last paycheck again I'm just zipping

through this don't even pay attention to

this part just stick with me we're gonna

get through this quickly we're gonna

take the standard deduction which is

twenty four thousand eight hundred

dollars that's a big deal but we're

going to take that for married filing

jointly and this so for this page we're

just

check off just gonna get the results I

want to show you what that looks like

we're gonna click on next you see right

there our tax liability is eight

thousand one hundred and thirty two

dollars so let's go back to this section

really quickly the tax credit section

most important part of this whole

walkthrough let's zoom in here and go to

see tax credits zoom in air right there

that first one the child and dependent

related that first box I dropped down

how many children qualified that are

under the age of seventeen qualifying

children under 17 I'm gonna put one

let's see what it does I'm gonna put one

there click Next and it drops to six

thousand six hundred and thirty two now

you might be thinking well wait a second

that only dropped by fifteen hundred

dollars not the full two thousand so the

reason is the reason that did that and

it only dropped by fifteen hundred was

because we already got the five hundred

for the dependent credit so the credit

for other dependents which is five

hundred dollars who'd already calculated

that because on that first screen we put

that we had one dependent this was

married filing jointly with one

dependent who's already assuming at the

very least given all the other

information that we put in there that we

were least going to get the five hundred

dollar credit for the credit for other

dependents now we flipped it over to the

child tax credit so it gave us the

additional fifteen hundred so it is in

fact the full two thousand dollars how

would you know if you scroll away to the

bottom the details the details details

details it will be here somewhere

there it is child tax credit two

thousand dollars see it so it's giving

you all the information in the breakdown

so if you wanted to know that's how you

can figure it out so two thousand

dollars now that PDF I talked about it's

right here all you need to do is click

on it so I will click on it

now once you click on it you can't come

back and edit this thing unfortunately

that's a flaw I don't know if it's my

iPad or if it's just how this program

works but it gives you a printout of the

w-4 that you could print out and it

makes the adjustment for you now you can

see right there it

the child tax credit for the of $2,000

and it made the adjustment now why did

it make the adjustment that's confusing

why can't I just put two thousand in

that section because it's a two thousand

dollar credit right for the claiming the

dependents in Section three well it made

the adjustment because of the income

that I put in previously and in addition

to that how much I've already withheld

ear to date and it determined that I

have withheld too much money so far and

I'm going to withhold too much so I

needed to make an adjustment it does it

for you that's the nice thing about

doing the online version

it'll make sure that your paychecks or

really as big as possible you're getting

the least amount of a refund because

refund is not a good thing if you think

you're gonna get a huge refund like it's

a good thing it's not it's money that

you've already had so basically giving

the IRS a free lump so the less of a

refund that you're going to get the

better off you're gonna be what that

means is that your paychecks you're

gonna get that money today so what can

you do with that money you could save it

you could put it in the bank open an IRA

save it for your future do something

positive with it

but that's what you can do with it you

can get the money earlier rather than

waiting for it

so there isn't this magical pile of

money at the IRS it's just they're just

gonna give you a refund and you don't

have to do anything for it you do have

to do something for it you have to file

your taxes you have to make sure that

you're paying the right amount but not

too much all right so this last little

bit that I want to go through is if you

earn too much money if you're actually

over that 200 or that four hundred

thousand dollar threshold for income and

you still have a qualifying child to

make sure that you're maximizing your

child tax credit so it begins to phase

out at four hundred thousand or two

hundred thousand so let's take a look

I'm gonna put it up on the screen here

and we can take a look I've already gone

through this again so I put it as four

hundred and twenty thousand for this

walkthrough so four hundred and twenty

thousand is the income for this

household married filing jointly one

dependent one child one qualifying child

if we scroll down look at that they

still qualify for the child tax credit

it's just beginning to phase out so

basically for each

dollars over four hundred thousand and

two hundred thousand for singles it's

going to go down by fifty dollars so if

we look at that we have twenty so if you

do twenty times fifty that's a thousand

dollars so that's why we only got half

now there's a couple of things that you

can do if you do make this kind of money

then you should save it pre-tax

so here's a good scenario when you want

to focus on possibly the pre-tax dollars

like the 401 K versus the Roth IRA to

help you reduce your total tax liability

so let's go to that first screen and I

can show you what that looks like

so if we go here and or excuse me that

second screen that is where our 401ks

also be at the 401 K and we're gonna

make a $19,000 a year contribution now

for here we could we could have put

nineteen five because that's what it is

for 2020 so nineteen five you click Next

click Next Next see those results I'll

scroll down so it reduced our total

taxable income and you can see it right

there so our total pre-tax income was

420 we put in nineteen five and what

we're left with is a net income of four

hundred thousand five hundred dollars so

let's scroll down so what do we think

that's going to be it looks like it's

gonna be reduced by so was gonna be

reduced by what about twenty five

dollars that was gonna be our child tax

credit there we go

child tax credit nine nineteen hundred

seventy five dollars one thousand nine

hundred and seventy five dollars so that

is how you could reduce your total tax

liability just by making sure that

you're saving not only saving but saving

into the right accounts so that is the

difference between the Roth IRA in the

401 K I just like to point those things

out because there's just so much stuff

out there that says the Roth IRA Roth

IRA Roth IRA it's the greatest

investment vehicle ever it's pretty good

but it's not always the right choice so

here was another scenario when the 401 K

could be a better choice could be not

always but it could be a better choice

for your take

situation now on the flip side if you

don't have any income and you're single

or you don't have any income in you're

married filing jointly then get some

income because getting an extra two

thousand dollars just to earn twenty

five hundred dollars that's a huge bump

in your pay it's almost 100 percent rate

of return almost but not quite so you

want to make sure that you're paying

attention to the income levels so that's

a child tax credit make sure that if you

do qualify for it that you're filling

out your w-4 correctly that you're

filling out your taxes correctly and

that you qualify for the child tax

credit and if you do get a refund save

it save it into a retirement account and

then go back to your w-4 and make the

adjustment so you're not getting as big

a refund you're gonna get a bigger

paycheck but as soon as you do it

make sure that you set up the savings

plan because you're gonna get really

used to that income and that paycheck

coming through the door if it's a little

bit bigger than it used to be and then

before you know it you're gonna get

comfortable with that income and you're

gonna miss out something then you're

gonna miss out on some savings so

maximize your savings make sure that

you're looking at this stuff look your

w-4 look at child tax credit to fill out

your taxes and hopefully you're better

off if you've enjoyed this video be sure

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