What is the Child Tax Credit?

Tax credits offset taxes owed (and may also be refundable) and you should apply for them whenever you can. One of them, The Child Tax Credit, may be worth as much as $1,000 per qualifying child depending upon your income and is refundable. That means that if the credit exceeds the amount of tax you owe, the IRS will send you a check for the difference. Here are the details about the credit:

  1. Amount – The credit is worth up to $1,000 for each qualifying child under the age of 17.
  2. Qualification – To be a “qualifying child,” the child has to meet all of the following:

a)    Age Test – The child must have been under age 17 at the end of the tax year.

b)   Relationship Test – The child must either be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals, which includes your grandchild, nieces or nephews. An adopted child is always treated as your own child. An adopted child includes a child lawfully placed with you for legal adoption.

c)    Support Test – The child must not have provided more than half their own support.

d)   Dependent Test – You must claim the child as a dependent on your federal tax return.

e)    Citizenship Test – The child must be a U.S. citizen, U.S. national, or U.S. resident alien.

f)     Residence Test – The child must have lived with you for more than half of the tax year. Some exceptions apply on this test alone, such as where a divorce decree states otherwise. But the other five items must all be true.

  1. Limitations – The credit is limited if your modified adjusted gross income is above a certain amount. The amount at which this phase-out begins varies depending on your filing status. For married taxpayers filing a joint return, the phase-out begins at slightly over $110,000. For married taxpayers filing a separate return, it begins at about half this amount. For all other taxpayers, the phase-out begins at about $75,000. In addition, the Child Tax Credit is generally limited by the amount of the income tax you owe as well as any alternative minimum tax you owe.
  2. Additional Child Tax Credit – If the amount of your Child Tax Credit is greater than the amount of income tax you owe, you may be able to claim the Additional Child Tax Credit. This is the refundable part that comes back to you even if you don’t owe any additional tax.

So it’s definitely a tax credit worth considering if you have dependents related to you. For more information on the tax credit, see IRS Publication 972 or speak with your tax professional.

By: Evan A. Nielsen (Licensed in California)

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