What is the Child Tax Credit?

What is the Child Tax Credit?

By Tim Frye

Children are the future. And I am sure that your children are the most precious in the entire world. They are priceless. Well, actually, to the IRS they are actually worth a specific amount, depending on their age and there living situation. There can be several different benefits in claiming dependents on a tax return, especially if they are your client’s own children. There is the Earned Income Credit, which is dolled out in greater proportions if the taxpayer has qualifying dependents. They will get the extra $3,800 for the dependent’s personal exemption, which can be an especially potent deduction if your client is resting in high marginal tax brackets. Then there is the Child Tax Credit. The Child Tax Credit is a credit that is offered to those taxpayers who have dependents that are under the age of 17 by the end of the tax year, and it can eat away at tax liability up to $1,000 per child, depending on the taxpayers earned income totals. Let’s discuss the specifics of the Child Tax Credit, and it’s refundable portion, the Additional Child Tax Credit…


Qualifications for the Child Tax Credit

There are obviously certain qualifications that must be met in order for a taxpayer to gain access to the Child Tax Credit. The Child must meet the following requirements:

-Relationship:Dependent must either be son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of these.(Adopted children do qualify)

-Support: Child must not have provided more than half of his or her support

-Dependent: You must claim the child as a dependent on your tax return

-Citizenship: Child in question must be either U.S. Citizen, U.S. National, or a U.S. Resident Alien

-Residence: Child must have lived with the taxpayer for more than half of the tax year in question

The Limitations of the Child Tax Credit

The Child Tax Credit is only allowed to limit the taxpayer’s tax liability to zero. The credit is also phased out once the taxpayer’s AGI exceeds specified amounts. For MFJ, the phase out begins to rear it’s teeth at $110,000. For those taxpayers who are married but choose to file separately, the potency of the credit starts to ween at $55,000. All other taxpayers experience the phase out at $75,000.

Additional Child Tax Credit

The portion of the Child Tax Credit that becomes refundable is classified as the Additional Child Tax Credit. If the taxpayer did not gain the full benefit of the Child Tax Credit due to the limitations of tax liability, they can get the remainder of that credit in the form of the Additional Child Tax Credit. The Additional Child Tax Credit amount is equal to the lesser of the un-allowed child tax credit or 15% of the taxpayer’s earned income that is in excess of $3,000.

If the taxpayer doesn’t have earned income surpassing $3,000, then they still may qualify to claim the Additional Child Tax Credit up to the ceiling of the amount of Social Security Taxes paid during the tax year in question. There are numerous benefits that come with claiming a child on a tax return, as there should be. Anyone who has ever had kids knows how truly expensive they can be. So even though their can never be a price put on your child’s worth, it doesn’t hurt to see a little money head back in your direction during tax time because of your claiming of your children.