Depending on your income, you may be eligible for a child tax credit of up to $1,000 per child. Remember that unlike a tax deduction, a tax credit is a dollar-for-dollar reduction in your tax bill. Sound good? Here's what you need to know about the child tax credit, from the eligibility requirements to how to claim it. For starters, you need to be the parent or guardian of a minor child.
What Is the Child Tax Credit?
Child tax credits are designed to give an income boost to the parents or guardians of dependent children. How much is the child tax credit? That depends on your income. The child tax credit lets you reduce your federal income tax bill by up to $1,000 for each qualifying child under the age of 17 that you claim as a dependent. The child tax credit for 2015 is the same as it was for 2014: up to $1,000 per child.
The child tax credit is just that - a tax credit. It's not a deduction. Because it's a tax credit, it directly reduces the amount you owe the IRS. So, if your tax liability is $3,000 but you're eligible for, say, $800 of child tax credit, you now owe $2,200.
The child tax credit is non-refundable. That means that if you're eligible for $3,000 in tax credits but only owe the IRS $2,000, you won't get the $1,000 difference refunded to you. Technically, you can get that $1,000, but you'll have to claim what's called the Additional Child Tax Credit - assuming you're eligible to do so. We'll get to that.
Child Tax Credit Eligibility
Eligibility for the child tax credit hinges on a few factors. One of them, of course, is whether you are the parent or guardian of minor children. The child you claim as your dependent has to meet six IRS tests:
- Age Test: The child you claim as your dependent must have been under age 17 (so, 16 or younger) at the end of the tax year.
- Relationship Test: The child must be your daughter, son, foster child or adopted child. The child can also be a grandchild or a descendant of one of your siblings.
- Support Test: The child must not have provided more than half of their own "support," meaning the money they use for living expenses.
- Dependent Test: The child must be claimed as your dependent on your federal income tax return.
- Citizenship Test: The child must be a U.S. citizen, a U.S. national or a U.S. resident alien.
- Resident Test: The child must have lived with you for more than half of the tax year (with a few exceptions detailed on the Child Tax Credit worksheet).
In addition to these 6 tests, income is also an eligibility factor.
Eligibility for the child tax credit isn't all-or-nothing. There's such a thing as the child tax credit income phase-out. As your modified adjusted gross income (MAGI) increases, the child tax credit begins to phase out. You'll get $50 less in child tax credits for every $1,000 - or portion of $1,000 - that your modified AGI exceeds:
- $75,000 if you're filing as the head of your household, single or as a qualifying widow(er)
- $110,000 if your filing status is married filing jointly
- $55,000 if your filing status is married filing separately
As you can see, it's possible to be so rich that you're ineligible for the child tax credit.
Claiming the Child Tax Credit
Eligible filers will claim the child tax credit on Form 1040, Form 1040A, or Form 1040NR. Unfortunately for those who like the simplified versions of the tax form (Form 1040NR-EZ or Form 1040EZ), you can't claim the child tax credit on those worksheets.
The IRS provides Publication 972 The Child Tax Credit as a child tax credit worksheet to help you calculate the child tax credit. It's not a child tax credit calculator per se but it will tell you how much you can claim in child tax credits on your Form 1040, Form 1040A, or Form 1040NR.
Want to know how to calculate the child tax credit? Look no further than Publication 972. The publication starts with some introductory material to help you understand the tax credit and who's eligible. The worksheet comes later.
The Additional Child Tax Credit
The child tax credit itself is non-refundable. That means that if the amount of credit you're eligible for is greater than the amount you owe the IRS, you won't get the difference back in your
. To get that money, you can file for what's called the Additional Child Tax Credit, assuming you're eligible.
The 2009 American Recovery and Reinvestment Act (ARRA) expanded the eligibility for the additional child tax credit. The law reduced the minimum amount of earned income used in calculating the additional child tax credit to $3,000. This change made more taxpayers eligible for the credit and raised the amount they could claim.
The additional child tax credit has been extended and will last through December 2017. It's designed for filers who get less than the full amount of the child tax credit. Before you file for the additional child tax credit, you'll need to fill out the paperwork for the regular child tax credit. According to the IRS:
- If you answered "Yes" on line 9 or line 10 of the Child Tax Credit Worksheet in the Form 1040, Form 1040A, or Form 1040NR instructions (or on line 13 of the Child Tax Credit Worksheet), use Parts II - IV of Schedule 8812 to see if you can take the additional child tax credit.
- If you have an additional child tax credit on line 13 of Schedule 8812, carry it to Form 1040, line 67; Form 1040A, line 43; or Form 1040NR, line 64.
The Child and Dependent Care Tax Credit (CDCTC)
The child tax credit and the childcare tax credit are two different things. The child tax credit can only be claimed by the parents or guardians of minor children. The child and dependent care tax credit, on the other hand, can also be used by those who are caring for aging parents or disabled relatives.
With the Child and Dependent Care Tax Credit, you can't claim more than $3,000 of care expenses for one child/dependent. If you have two or more children/dependents, you can't claim more than $6,000 of care expenses. Technically, there's no income phase out if you're trying to claim the CDCTC, but the credit can only equal up to 35% of your qualifying care expenses (depending on your AGI).
What counts as a care expense? According to the IRS rules on the CDCT, "If you paid someone to care for your child, spouse, or dependent last year, you may be able to claim the Child and Dependent Care Credit." You must have secured a caregiver who you paid so that you or your husband or wife (if filing jointly) could go to work or hunt for a job. To claim the federal credit, fill out IRS Form 2441.
State Child Tax Credits
Some states offer a complementary state-level child tax credit and/or CDCTC that matches part or all of the federal credit. In some states, the credits are refundable and in other states they are not. Check out this
for state-by-state details.
The Takeaway
The IRS offers child tax credits to help parents and guardians offset some of the costs of raising a family. Some people who are eligible for these child tax credits never claim them, however. If you're eligible, don't leave money on the table. You could be reducing or eliminating your tax bill, or earning a bigger refund. Who doesn't want that?
Photo credit: ©iStock.com/Christopher Futcher, ©iStock.com/gruizza, ©iStock.com/DragonImages
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