Child Tax Credit

Hello! Liberty Taxes & Business Services here to answer your pressing questions during this busy tax season. Short of getting a part-time job delivering newspapers or washing dishes, your children can help you save more money when it is time to file your taxes. If you are the parent of a child below the age of 17, you may be eligible for something called child tax credit. Determining whether you and/or your spouse are eligible may not be apparent to at first glance. That’s why we recommend you Find a Tax Professional for Child Tax Credit to assist you in the process. At the bottom of this article, click on the link to make the process as fast and efficient as possible.

In this article, we’ll see how child tax credit can help you save money.

What is the Child Tax Credit?

Raising children is not only hard work, but it is expensive! Luckily, the IRS understands the financial burden that raising children can be, especially for families in need. Thus, they offer a child  tax credit, which reimburses you for your parental duties and expenses. For every child that meets the conditions outlined below,you can receive a tax credit of up to $1,000/child on your tax return. The tax credit reduces your tax bill overall. For instance, a family of three children may be able to reimburse you $3,000. That’s not a bad deal at all.

However, the credit is cut back if your income exceeds certain levels. There also must be another important distinction: the child tax credit doesn’t affect the exemption deductions you take for dependent children. The child tax credit is in addition to those deductions.

Does Your Child Qualify?

Of course, there are a number of factors that can influence whether you and your child are eligible for child tax credit. These include:

• Age: At the end of the calendar year, your child must have been under 17 years old (age 16 or younger).
• Relationship: Your child must be either your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals (grandchild, niece or nephew). Adopted children are equivalent in status to your biological children. Adopted children include children lawfully placed with you for legal adoption. 
• Support: Your child must not have provided more than fifty-percent of their own support. 
• Dependency: You must claim the child as a dependent on your federal tax return. 
• Citizenship: Your child must be a U.S. citizen, U.S. national, or U.S. resident alien. 
• Residency: The child must have lived with you for more than half of the year. Exceptions to the residence test, which can be found in IRS Publication 972, Child Tax Credit. 

Additionally, you must report each qualifying child's Tax Identification Number (TIN) on your return. The TIN is most often the child's Social Security number. If you’re unsure of whether or not your children qualify, the best course of action is to Find A Tax Preparer that understands the specific circumstances of your situation.

A Note on Withholdings

If you’ve been thinking that waiting a full year to be reimbursed for your children via child tax credit is too long, there is a solution: you may be able to reduce how much you have withheld on your paychecks. If your tax refunds seem more substantial than normal, this may be an indication that you are able to claim more allowances. Having more funds in the present is usually more desirable than waiting a prolonged period for a lump-sum payment. It may be in your best interest to review your W-4 filed with your employer or consult a qualified Accountant to level out your return throughout the year.

Additional Child Tax Credit

There is a threshold associated with the amount of child tax credit you can receive. If your credit is bigger than your tax liability, your tax bill owed is simply reduced to zero, with the remaining credit being lost. But, there are exceptions to this rule: if your income is low enough and tax bill has been reduced to zero, a refund can be issued to you for the difference. This is called the additional child tax credit.

For qualifying families, you may be eligible for a refund of up to 15 percent of your earned income in excess of $3,000. If your earned annual income is less than $3,000, you may fit the requirements for refundable child tax credit if you have 3 or more children and paid Social Security taxes that were in excess of your earned income credit.

Limitations

Child tax credit is, however, limited if your modified adjusted gross income is above a certain amount, which is dependent on your filing status:

• For married taxpayers filing a joint  return, the phase-out begins at $110,000. 
• For married taxpayers filing a separate  return, it begins at $55,000. 
• For all other taxpayers, the phase-out  begins at $75,000. 

In addition, the Child Tax Credit is generally limited by the amount of owed income tax and any alternative minimum tax you owe.