What is the Child Tax Credit

The Child Tax Credit is a refundable tax credit that was created by Tax Relief Act of 1997 to help families with children reduces their tax bill.  Most tax credits will reduce tax liability to zero; however, since the Child Tax Credit is categorized as a refundable tax credit, the use of a refundable tax credit can reduce tax liability that surpasses zero; therefore, it is considered a refund to the taxpayer.  Child Tax Credit can only be claimed by the taxpayer with use of tax forms 1040, 1040A, or 1040NR.

The Child Tax Credit is worth up to 1,000 dollars per child; however, they are dependency, relationship, and support, qualifications that the taxpayer must meet to claim the Child Tax Credit.  Once dependency, relationship, and support criteria are met, the dependent or qualifying child must also meet age, citizenship, and residency requirements before the Child Tax Credit can be claimed by the taxpayer.  The Child Tax Credit also has its limitations that are based on the filing status, income of the taxpayer and in some cases the alternative minimum tax or other income tax owed.

Dependency is determined by being claimed as dependent by the taxpayer on the federal income tax return. For the purpose of qualifying for the Child Tax Credit, the relationship required between dependent and taxpayer can be son, daughter, brother, sister, legally adopted child, stepchild, nieces, nephew or grandchild.  The child could not have provided more than half of their own support to be considered a qualifying child to be used by taxpayer when claiming the credit.

The qualifying child must be under the age of seventeen in the year he or she would be claimed by the taxpayer in order to take the Child Tax Credit.  Dependent will meet certain age requirements, but he or she must also be a United States citizen to be considered a qualifying child for the credit. The only other requirement is that qualifying child must have resided with the taxpayer for more than half of the year before he or she can be considered a qualifying dependent for the Child Tax Credit. The only exception to the residency requirement is if the child was born or died in the year, he or she is claimed by taxpayer, then he or she would be considered as meeting the residency requirements.

The Child Tax Credit is not available to taxpayers who file jointly, and their modified adjusted gross income would be above 110,000 dollars. The credit is also phased out for any taxpayer that is married, but will file a separate income tax return when their modified adjusted gross income is 55,000 dollars. For the taxpayer that is not categorized as married filling jointly or separate, he or she will remain eligible to take the credit if their modified adjusted gross income does not exceed 75,000 dollars.  In some cases if the taxpayer owes an alternative minimum tax or any income tax, it would be a factor in limiting the use of the Child Tax Credit.

A good resource that provides actual worksheets used to calculate the Child Tax Credit along with an in depth explanation to the criteria used to determine if the taxpayer can claim the credit is Internal Revenue Service Publication 972.