The Child Tax Credit (CTC) is a tax credit for single or
married workers earning low or moderate incomes who have dependent children
under age 17. Workers who qualify for the CTC and file a federal tax return can
receive a credit of up to $1,000 per child.
CTC funds are first used to reduce or eliminate any income
tax liability owed by the family; remaining amounts are refunded. Workers whose
earnings are too small to have paid taxes may also be eligible for the CTC.
The child tax credit and its companion additional child tax
credit can cut your tax bill by several hundred dollars for each young
dependent you claim. For the child tax credit, there are no records to keep or
extra forms to file to get this savings. If you claim tax relief for more than
one child, then you do have to fill out Form 8812.
And for both credits, there are certain tests to meet and
worksheets to complete before the Internal Revenue Service will let you take
the credit.
Tax law changes in the last few years have made the child
tax credit even more appealing.
Taxpayers must complete either the 1040 or the 1040A and the
IRS tax form 8812. The IRS
will then determine eligibility, and process accordingly; the requirements and
limits change each year, so the individual's eligibility may change each year.
In order to qualify, a family must have earned at least
$10,500 in income, and that figure will rise each year, according to inflation.
A qualifying child is a child who:
- Is a United
States citizen, a United
States resident, or a national of the United
States,
- Is
under age 17 at the end of the calendar year in which your tax year
begins,
- Is
your son, daughter, stepson, stepdaughter, legally adopted child, or a child
placed with you for legal adoption, brother, sister, stepbrother,
stepsister, foster child placed with you by an authorized placement agency
or by a court order, or a descendant of any such person, and who
- Shares
with you the same principal place of abode for more than one-half of the
tax year, or is treated as your qualifying child under the special rule
for parents who are divorced, separated, or living apart.
- Have a
social security number.
Just how much of a child tax credit you'll get is limited, however,
depending on your tax-filing status and the amount of money you earn.
Taxpayers with larger families will want to claim the
additional child tax credit. This is separate from the child credit, primarily
because it can be taken even if you owe no taxes. That means your kids could
help you get a refund check from Uncle Sam.
In addition to having its own line on your individual tax
return, the additional child tax credit requires a bit more paperwork. Form
8812 must be filled out and filed with your return.
In general, the child tax credit is limited also by the sum
of your income tax liability and any alternative minimum tax liability. For
example, if the amount of the credit is $600, but the amount of your income tax
is $500, the credit ordinarily will be limited to $500. However, there are two
exceptions to this general rule.
First, if the amount of your child tax credit is greater
than the amount of your income taxes, you may be able to claim an
"additional" tax child tax credit if your earned income exceeds the
base amount for the year.
Second, if you have three or more qualifying children, you
may be able to claim an additional child tax credit up to the amount of Social
Security taxes you paid during the year, less any earned income credit you
receive.
If you qualify under both these exceptions, you receive the greater of
the two additional amounts. You can find the base amount, as well as more
information on qualifying with three or more children in the Publication 972, Child
Tax Credit.
The total amount of the child tax credit and any additional
child tax credit cannot exceed the maximum amount allowed for the taxable year.
You can find the maximum amount allowed in Publication 972, Child Tax Credit.
When visiting a TCE (Tax Counseling for the Elderly) or VITA
(Volunteer Income Tax Assistance) site, bring the following:
All W2 tax forms for household 1099 tax forms (if any)Social
Security Card(s) or Individual Taxpayer ID Number(s) for all household
membersLast Year's Tax Return (if you have one)Child care provider name,
address and tax ID numberEducation expenses and student loan informationFor
direct deposit, a check or savings account number with routing numberCopies of
payments to municipalities (local property taxes such as automobiles) for state
tax returns
Any other tax-related documents you have received
The rules get even more complex when your child credits
exceed your income tax liability. If so, you may be allowed a refundable credit
depending upon your income. This means that Uncle Sam could write you a check
for the excess of the childcare credit over your tax liability.
The provisions are much too complicated to explain in detail
here. Just know that if your credit exceeds your tax liability, you should slog
through the child credit rules and worksheets in order to determine if you
qualify for the refundable credit. And if you have three or more qualifying
children and your credit exceeds your tax liability, you'll have to make even
more computations.
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