Claiming the child tax credit can significantly reduce your family's tax liability. You may be able to reduce your income taxes due by up to $1,000 for each minor child who qualifies for the child tax credit. But first, you must meet all the tests to be eligible for the child tax credit.
Qualifying for the Child Tax Credit
To qualify for the child tax credit, you must meet every single one of the following six tests:
- Age test. The child must have been age 16 or younger -- under age 17 -- at the end of the calendar year for which you're filing income taxes.
- Relationship test. The child must either be your son, daughter, stepchild, foster child, adopted child, brother, sister, stepbrother, stepsister or offspring of any of these individuals, including your grandchild, niece or nephew.
- Support test. For you to claim the child tax credit, the child cannot have provided more than half of his or her own financial support.
- Dependent test. On your federal tax return, you must claim the child as your dependent.
- Citizen test. The child must be a citizen, national or resident alien of the United States.
- Residence test. The child must have lived with you for more than half of the calendar year for which you're paying federal taxes. There are some exceptions, such as for temporary absences or a new baby, which are detailed in IRS Publication 972.
Limitations and Additions to the Child Tax Credit
When your adjusted gross income exceeds a certain amount, the credit begins to phase out. The dollar figure depends on your filing status. The amount of the child tax credit is also limited by the amount you owe in income taxes and any alternative minimum tax.
For the 2009 and 2010 tax years, you may claim the full child tax credit if you make:
- Under $110,000 if married and filing jointly.
- Up to $75,000 if head of household or single.
- Up to $55,000 if you're married but filing separately.
Your credit will be reduced by $50 for every $1,000 by which your income exceeds the limits.
You may be able to claim the additional child tax credit if you owe less in income taxes than the amount of your child tax credit. In other words, the additional child tax credit comes into play if you cannot take the full amount of the credit because your income taxes are too low.
A Child Tax Credit Example
The Internal Revenue Service gives a detailed example of a family that qualifies for the child tax credit and how it works.
Suppose there's a married couple with four children, all of whom are qualifying children for the credit. The couple's adjusted gross income is $97,000 and they file a joint return. They owe $3,371 in taxes and must factor in $15,000 in income from Puerto Rico, which they had excluded from their income taxes.
In completing the child care tax credit worksheet, found in IRS Publication 972, they discover that their child care tax credit is $3,371 and they also qualify for the additional child tax credit of $529. To see the completed worksheet, you may order Publication 972 by calling the IRS at 800-TAX-FORM (800-829-3676) or downloading it from the IRS Web site.
Source: Internal Revenue Service