If you have children, you may be eligible for the Child Tax Credit which is a credit worth up to $1,000 for each qualifying child. This credit can help reduce or eliminate your overall tax bill and provide some financial relief for parents raising children.
The following rules apply in determining whether a child qualifies for the tax credit:
- The child must have been under the age of 17 (16 or younger) at the end of the tax year.
- The child must either be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of these individuals (which includes your grandchild, niece, or nephew). An adopted child is always considered your own child and includes a child lawfully placed with you for legal adoption.
- The child must not have provided more than half of their own support.
- The child must be claimed as a dependent on your federal income tax return.
- The child must be a U.S. citizen, U.S. national, or U.S. resident alien.
- The child must have lived with you for more than half of the tax year.
Eligibility for the Child Tax Credit is based on two main criteria: income level and tax status. The tax credit begins to phase out if your “modified adjusted gross income" (MAGI) exceeds the following thresholds:
- $75,000 for Single, Head of Household, or Qualifying Widow/Widower
- $110,000 for Married Filing Jointly
- $55,000 for Married Filing Separately
If your income is above these limits, you may consult IRS publication 972 (Child Tax Credit) or a tax professional to calculate your MAGI and your eligible Child Tax Credit amount.
The Child Tax Credit may also be limited by the amount of the income tax you owe as well as any Alternative Minimum Tax (AMT) you owe. Additionally, if the amount of your Child Tax Credit is more than the amount of income tax you owe, you may be able to claim the Additional Child Tax Credit.
For example, say your tax liability on Line 44 of Form 1040 is $1,750 and your Child Tax Credit is $2,000 ($1,000 for each of your two qualifying children). In this situation, you can take only a $250 credit on your tax return ($2,000 - $1,750 = $250). However, you may be able to receive a refund for the Additional Child Tax Credit (see IRS Form 8812, Additional Child Tax Credit).
In certain situations, you may be able to claim the Child Tax Credit for a non-dependent child if either of the following applies:
- You (or your spouse if filing jointly) can be claimed as a dependent by someone else.
- Your qualifying child is married and files a joint tax return with his/her spouse, but the child would have no tax liability if a separate return had been filed.
To claim the Child Tax Credit for a non-dependent child, you must file IRS Tax Form 8901 (Information on Qualifying Children Who Are Not Dependents, For Child Tax Credit).