Parents, guardians and other taxpayers who are eligible to claim a child as a dependent on their tax return may also be eligible for a federal tax credit of up to $1,000 per child. The Child Tax Credit is one of serveral tax-related benefits for families and children. Remember that a tax credit is different (and in most cases better) than a deduction. The Child Tax Credit is available to “eligible taxpayers” with “qualifying children” under age 17. Be aware that there are additional criteria and not all dependents will qualify.
With the Child Tax Credit, you may be able to reduce your federal income tax by up to $1,000 for each qualifying child under age 17.
A qualifying child for this credit is someone who meets the qualifying criteria of seven tests: age, relationship, support, dependent, joint return, citizenship and residence.
Age Test: To qualify, a child must have been under age 17 – age 16 or younger – at the end of 2011.
Relationship Test: To claim a child for purposes of the Child Tax Credit, the child must be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals, which includes your grandchild, niece or nephew. An adopted child is always treated as your own child. An adopted child includes a child lawfully placed with you for legal adoption.
Support Test: In order to claim a child for this credit, the child must not have provided more than half of his/her own support.
Dependent Test: You must claim the child as a dependent on your federal tax return.
Joint Return Test: The qualifying child can not file a joint return for the year (or files it only as a claim for refund).
Citizenship Test: To meet the citizenship test, the child must be a U.S. citizen, U.S. national or U.S. resident alien.
Residence Test: The child must have lived with you for more than half of 2011. There are some exceptions to the residence test, found in IRS Publication 972, Child Tax Credit.
Limitations & Phaseouts
The credit is limited if your modified adjusted gross income is above a certain amount. The amount at which this phase-out begins varies by filing status. For married taxpayers filing a joint return, the phase-out begins at $110,000. For married taxpayers filing a separate return, it begins at $55,000. For all other taxpayers, the phase-out begins at $75,000. In addition, the Child Tax Credit is generally limited by the amount of the income tax and any alternative minimum tax you owe.
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 with a portion being refunded to you. The refundable portion is calculated based on the number of children the taxpayer is claiming.
Planning Ahead for 2013
The Tax Relief Act of 2010 extends the enhanced child tax credt of $1,000 maximum credit per child. This $1,000 credit is scheduled to expire at the end of 2012. Unless there’s further legislation, the child tax credit will revert to its previous maximum of $500 per child in the year 2013.