Home > Credits & Deductions > Child Tax Benefit Basics

Child Tax Benefit Basics

Posted on August 29, 2013 by
More articles from Credits & Deductions

family tax breaksThe cost of raising children can be overwhelming to the family budget. After food, clothing insurance and educational costs, your little bundle can easily cost you a bundle. Fortunately, there are a number of federal tax breaks to offset the cost of raising a child. One of the most popular and beneficial is the child tax credit.

The child tax credit allows you to claim a maximum of $1,000 per qualified child. And thanks to the American Taxpayer Relief Act enacted January 2013, this tax break is one of several family-friendly tax breaks that’ll be around for at least another five years.

The intent of the child tax credit is to assist middle and lower class income earners. Therefore, the amount of the child tax credit is gradually lowered based upon higher income levels. For some taxpayers, the child tax credit can reduce their federal income tax liability to zero, and any remaining or excess child tax credits might be refundable to the taxpayer. Technically, there’s no limit as to how many children can be claimed for a child tax credit; however, additional dependents could require the taxpayer to pay alternative minimum tax.

A taxpayer will be eligible for the child tax credit if all the following criteria are met:

  • The child is related to the taxpayer as a daughter, son, adopted child, stepchild, foster child, sister or brother or descendant such as a nephew, niece or grandchild.
  • The child was under the age of 17 at the end of the year (i.e. the child is 16 or younger.)
  • The child lived with the taxpayer for over half of the tax year.
  • The child provided under half of their own financial support.
  • The child is a U.S. citizen, or a dependent that is not a U.S. citizen but has lived in the U.S. and is a resident.
  • The child meets criteria as a dependent of the taxpayer as described above.

If in doubt, filers can use the “Am I Eligible for the Child Tax Credit?” web utility on www.IRS.gov.

Phaseouts and Income Limitations

Like other credits, the child tax credit is gradually reduced based upon taxpayer income. Reduction begins at the following levels:

  • $75,000 for head of household, single and qualifying widow/widower tax filers
  • $55,000 for married couples who are filing separately

The child tax credit is reduced by $50 for each $1,000 of income over these thresholds.

Forms and Reference Material

Most filers can calculate their child tax credit with a worksheet found within the Form 1040 instructions. Publication 972 discusses the child tax credit in greater detail, and Publication 17, Chapter 34 also provides information about the child tax credit. Use Schedule 8812 when calculating the refundable portion of the child tax credit or reporting dependents who have an Individual Taxpayer Identification Number instead of a Social Security number.

Taxpayers can claim the child tax credit using either Form 1040 or the shorter version Form 1040A.

Subscribe to Taxbrain