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What You Need to Know about the Child Tax Credit

What You Need to Know about the Child Tax Credit - TaxAct Blog

Raising children is expensive. Fortunately, the Internal Revenue Service (IRS) offers many tax benefits, such as the Child Tax Credit, to help working families make ends meet.

Here is what you should know about this potentially valuable credit.

What is the Child Tax Credit?

The Child Tax Credit is a nonrefundable credit that may reduce your tax by as much as $1,000 per qualifying child under the age of 17. Unlike a deduction, which lowers your taxable income, a credit reduces your tax bill dollar for dollar.

However, it’s important to note that the Child Tax Credit is limited to the amount of tax on your return, and you cannot receive the excess credit as a refund.

How do I know if qualify for the credit?

You can take the Child Tax Credit if you meet the following requirements:

  • Your child is under age 17 at the end of the calendar year, and is a U.S. citizen, a U.S. national or a resident of the United States;
  • You claim the child as a dependent on your return;
  • The child did not provide over half of his or her own support for the year;
  • Your child will not file a joint return for the year unless it was only to claim a refund
  • Your child lived with you for over half the year. Temporary absences, such as school and summer camp, do not reduce the amount of time your child lived with you. If a child died or was born during the year, he or she counts as having lived with you for more than half the year.

According to the IRS, the following relatives are included in the definition of son or daughter: stepchild, foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister and a descendant of any of these.

My child lives with his other parent, but I claim the dependency exemption for him. Who takes the child tax credit?

If you are allowed to take the dependency exemption, and meet the other requirements, you can take the Child Tax Credit, even if the child does not live with you.

Be sure to attach Form 8332, Revocation of Release of Claim to Exemption for Child by Custodial Parent, signed by the other parent, to your tax return.

Do I still qualify for the credit if I have a higher income?

The credit starts to phase out as your income rises. Your credit is reduced if your modified adjusted gross income is more than $75,000 ($110,000 if filing jointly, or $55,000 if filing separately).

What’s the difference between the Child Tax Credit and the Child and Dependent Care Credit?

The Child and Dependent Care Credit is a tax benefit to help offset some of the costs of care for your dependent, generally while you are at work.

This credit is designed to make it easier for parents to keep working without putting too much stress on their budget.

If you have a qualifying child, the Child Tax Credit is available regardless of your childcare or other expenses.

What is the Additional Child Tax Credit?

If you are in a lower tax bracket, you may get money back from the Additional Child Tax Credit, even if the credit is greater than your income tax liability for the year. To qualify for this credit, you must have an earned income of at least $3,000.

If you have one or two children, the Additional Child Tax Credit may be as much as 15 percent of your earned income over $3,000.

If you have three or more children, this credit may be up to the larger amount of either 15 percent of your earned income over $3,000 or the total amount of your Social Security and Medicare taxes paid minus any Earned Income Credit.

If that sounds complicated, don’t worry. TaxAct does these calculations for you.

Can I claim the Child Tax Credit or the Additional Child Tax Credit on Form 1040EZ?

You must file Form 1040 or Form 1040A to claim the credit. And for the potential to earn a refundable credit of up to $1,000 per child, it’s well worth the trouble.

How do I claim the Child Tax Credit or the Additional Child Tax Credit?

TaxAct will determine if you qualify for the Child Tax Credit or the Additional Child Tax Credit based on your answers to a few simple questions.

TaxAct makes preparing and filing your taxes quick, easy and affordable so you get your maximum refund. It’s the best deal in tax. Start free now or sign into your TaxAct Account.
About Sally Herigstad

Sally Herigstad is a certified public accountant and personal finance columnist and author of Help! I Can't Pay My Bills, Surviving a Financial Crisis (St. Martin's Griffin). She writes regularly at CreditCards.com, Bankrate.com, Interest.com, RedPlum, and MSN Money. She is an experienced speaker and a member of Toastmasters International. Follow Sally on Twitter.

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