The 7 Step Checklist
If you are a parent, guardian, or someone who can claim a child as a dependent on your income tax return, you may be eligible to claim the child tax credit. This is a refundable federal tax credit which may be worth as much as $2,000 per child.
Some tax benefits are created for families with children to help ease the financial costs, and this is one that is often missed. Don’t confuse this with the Child and Dependent Care tax deduction. They are very different.
You can claim the child tax credit by using online tax software. Tax software helps busy families by finding tax deductions and credits in a quick and easy way.
There are many ways to qualify for this valuable tax credit and checking eligibility for a qualifying child is the first step. You must be able to say yes to all 7 questions below.
Here is a checklist to determine if your child or dependent can be claimed for the credit;
1) Relationship Test – The dependent child is a son, daughter, stepchild, foster child, adopted child, brother or sister; or a descendant of any of these relations such as a grandchild, nephew, or niece
2) Residency Test – The dependent child lived with the taxpayer for more than half the year (there are exceptions to this rule)
3) Age Test – The dependent the child is 16 years old or younger, not 17 or older
4) Support Test – The dependent child did not provide more than half of his or her own financial support
5) Citizenship Test – The dependent child is a citizen or resident alien of the United States
6) Dependency Test – The dependent child meets the criteria to be claimed as a dependent of the taxpayer
7) Income Tax Return Test – The dependent child does not file a joint tax return or (files only to claim a tax refund)
How to Calculate the Child Tax Credit
The Dependents Tax Credit Calculator will give you an accurate view of how much you could be entitled to.
Just answer some simple questions regarding your income and your living circumstances and you’ll get a readout on how much you may be eligible for.
It’s easy to claim all of the tax credits you deserve when you prepare your tax return online. The online software will choose the correct credits for you based on your answers to some simple questions.
Claiming the Child Tax Credit – TurboTax Tax Tip Video
Child Tax Credit History and Updates
The Child Tax Credit was established in 1997 to assist families with offsetting the general cost of raising children. Two expansions of the credit have taken place, in 2001 and again in 2009. Children under the age of 17 at the end of a tax year (December 31) may qualify for the credit, which is capped at a maximum of $1,000 per child.
The credit is deducted from the owed taxes on a tax return. Some of the credit may be refundable when the credit is over the tax liability of the family. Only a portion of the excess payment is given to taxpayers, which is then called the Additional Child Tax Credit. The way this works is that the refund can be up to 15-percent of earned income above $3,000.
If you earn more than $3,000 in a tax year, you can complete a worksheet to see if your family situation qualifies for the Child Tax Credit. If you have an income of $9,666 or more, and have only one child, you are likely eligible for the full credit. If you have two children, you must earn at least $16,333 for each additional child. The minimum income, when you have more than two children, to qualify for the full credit is increased by $6,666.
Your Filing Status Affects the Credit Amount
Once the earned income of a taxpayer filing under single status reaches $75,000, the child tax credit is reduced slightly. Married couples can have up to $110,000 income, when filing jointly, before the credit is reduced. There is a cap on claiming some of the credit, which is set at 5-percent above the reduction threshold. If you file a joint return, married couples can earn up to $130,000 before reductions in the credit allowed to be taken. Now, once you reach this income level, and have only one child, you are not eligible for the credit at all.
If you have two children, you may qualify for a partial credit if your income does not exceed $150,000 for those that are married filing jointly. Families with more than two children have higher income thresholds to qualify for a partial Child Tax Credit.
In 2001, the Economic Growth and Tax Relief Reconciliation Act was enacted. It doubled the standing credit of $500 to $1,000. This made the refundable credit amounts available to more families. Changes to this Act were made in 2009 to extend the credit, but were made permanent by the American Taxpayer Relief Act in 2012. In 2009, income thresholds were reduced to $3,000 to be able to claim the Child Tax Credit.
If you live in Oklahoma or New York, you may qualify for piggyback Child Tax Credits. Colorado also has an additional credit available if you have qualifying children under the age of 6. State Child Tax Credits also exist in California and North Carolina, which are not regulated on percentages of federal credits. New York offers a temporary tax credit that can be claimed.
Don’t worry, TurboTax will ask you simple questions and help you claim the child tax credit.