How to Get the Most Out of the Child Tax Credit

Tammy Logston
by Tammy Logston, Contributor

If you have met the basic requirements of the Child Tax Credit , primarily that the child be under the age of 17 by the end of the tax year, that you claim them as a dependent, and that they are related to you either as a son, daughter, step-child, foster child, adopted child, or a grandchild, nephew, or niece.  Additionally, in order to claim the Child Tax Credit they must be a citizen or resident alien of the United States and not contribute more than half of their own support.

Keep in mind that there are income limitations and gradual phase outs for the Child Tax Credit.  For married couples filing separately, $55,000 is the upper limit.  For married couples filing jointly, $110,000 is the upper limit and for heads of household, single and qualifying widows, $75,000 is the upper limit.  The Child Tax Credit is reduced by $50 for every $1,000 above the threshold figures.

Depending on your income tax liability, your income level, and the number of qualifying children, a tax ayer could potentially negate his/her federal tax liability by taking advantage of the Child Tax Credit.  Too, qualifying taxpayers may also qualify for a refund ― this is the Additional Child Tax Credit.

Qualifying for a Refund of the Child Tax Credit for tax payers whose Child Tax Credit is in excess of their federal tax liability.  For example, with one or two qualifying children, the refundable amount is that which is equal to the unused portion of the credit or 15% of the tax payers earned income over $3,000 ― whichever is smaller.

For those taxpayers having more than two qualifying children, the refundable amount of the Child Tax Credit is the smaller of (1) that portion of the Child Tax Credit not applied against federal income tax liability or (2) 15% of the tax payers earned income over $3,000 or (3) the sum of the Social Security and Medicare taxes paid less the earned income credit.

Another way to maximize the Child Tax Credit is for qualifying military personnel to report income as combat zone pay for their earned income.  Also, qualifying taxpayers can first reduce the amount of federal income tax owed by claiming the credits for Child Care and Adoption, prior to applying the Child Tax Credit, further maximizing the application of the Child Tax Credit and potentially claiming a tax refund or more of a refund.

Keep in mind that unless new legislation is passed or the 2009 & 2010 Child Tax Credit ($1,000/qualifying child) is extended, the Child Tax Credit for 2011 will be $500 for each qualifying child.