In order to potentially claim a refund of the Child Tax Credit, it is recommended that any and all other tax deductions or tax credits be applied, prior to claiming the Child Tax Credit. The following is a typical example, using the average household income in the United States along with two qualifying dependent children.
For the purpose of this exercise, we will assume that we are an average American family with two children, earning the median household income of $50,303.
Both of our children qualify for the child tax credit of $1,000.
Based on our tax status of married, filing jointly, we certainly meet the threshold amount of $110,000.
Throughout the year we’ve paid the following in federal income tax and FICA:
- Federal Income Tax Withheld: $3,850.60
- FICA (Social Security & Medicare) $3,799.12
Completing Tax Form 1040 and taking allowable deductions for dependents, 401K contributions, etc., we find that our adjusted gross income is now $37,803. Our income tax liability is $4,839.00 of which we’ve paid $3,850.60 through payroll deductions. This leaves a federal tax liability of $988.40. We further reduce that amount by claiming the Child Care credit in the amount of $750.00 now owing $248.40 in Federal Income Taxes.
Applying the maximum Child Tax Credit of $1,000.00 per qualifying child, we now find that we may be entitled to a tax refund of $1,751.60.
When utilizing the Child Tax Credit Worksheet, Tax Form 1040 must already have been completed. Should we have completed any other forms identifying qualifying credits, namely: Tax Form 5695 (Residential Energy Credits), Tax Form 8834 (Qualifying Electric Vehicle Credit), Tax Form 8910 (Alternative Motor Vehicle Credit), Tax Form 8936 (Qualifying Electric Drive Motor Credit) and/or Schedule R (Credit for the Elderly or Disable). These amounts must be identified in the Child Tax Credit Worksheet as these will be reduced prior to allowing the Child Tax Credit. However, by completing the Additional Child Tax Credit, we may qualify for a tax refund.
To calculate the amount of refund of the Child Tax Credit, we multiply the Earned Income portion by 15%. Should that figure result in a higher number than the Child Tax Credit not applied to federal income tax liability, the amount of tax refund due would be $1,751.60.
The following tax forms and publications are required or listed for reference:
IRS Publication 972 ― See section in this publication identified as “Child Tax Credits”
IRS Tax Form ― Child Tax Credit Worksheet (found within IRS Publication 972)
IRS Tax Form 8812 ― Additional Child Tax Credit