For parents and guardians of dependent children, the Internal Revenue Service (IRS) provides a tax credit that can help reduce your tax liability for the 2017, 2018 tax season.
The Child Tax Credit is designed to help with the high costs of child care and rising number of children in poverty in the United States. This tax credit has helps millions of families every year and has been proposed to be expanded with the Trump Tax Reform.
For 2017, the maximum amount of the credit is $1,000 per qualifying child. Certain income limits will lower this credit amount.
Who Qualifies for the Child Tax Credit
Eligible families can claim a Child Tax Credit of up to $1,000 per qualifying child. The Child Tax Credit, like most tax credits, has a phase-out at a certain income levels.
In order for an individual to be eligible for the Child Tax Credit, the following six tests must be met:
- Age Test: The child you claim must be under the age of 17 at the last day of the tax year (December 31).
- Relationship Test: The child you claim must be your own child, stepchild or foster child. The relationship test allows individuals to also claim a brother/sister, stepbrother/stepsister, nieces, nephews and grandchildren as long as all other qualifications are met.
- Support Test: The child must not have provided over half of his/her own financial support for the tax year.
- Dependent Test: The child must be claimed as a dependent on your tax return. You can claim a dependent on the first page of the tax return – you will need to enter full names, social security number and relationship in order to claim a dependent.
- Citizenship Test: The child must be a US Citizen, U.S. national, or U.S. resident alien.
- Residence Test: The child must have lived with you for more than half of the tax year for which you claim the credit. Some exceptions exist if you or the child had temporary absences due to school, medical care, military service, etc.
Income Limitations: Married taxpayers with modified adjusted gross income (MAGI) of $110,000 with have a reduced credit and eventually, the credit is fully phased-out above a certain income level. 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 the income tax you owe as well as any alternative minimum tax you owe.
Worksheet for Calculating How Much Child Tax Credit You Can Claim
The IRS provides a Child Tax Credit worksheet to help calculate the amount of credit available to take on your 2017 tax return. This worksheet along with additional information about the Child Tax Credit can be found in IRS Publication 972.
The calculation for this credit, can also be done free of charge, using TurboTax online software.
- you must determine how many qualifying children you can claim based on the six tests mentioned above.
- multiply the number of dependent children you can claim by $1,000 (maximum amount of the Child Tax Credit.
- determine your modified adjusted gross income (MAGI). This amount can be found on Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37.
- subtract your MAGI by the following amounts below depending on your filing status:
- Married ling jointly: $110,000
- Single, head of household, or qualifying widow(er): $75,000
- Married filing separately: $55,000
- for every $1,000 the MAGI exceeds the limitations above, the amount of tax credit allowed to be claimed is reduced by $50.
A single taxpayer with 2 qualifying children and modified adjusted gross income (MAGI) of $80,000 can claim a Child Tax Credit of $1,750.
Step 1: Number of Children x $1,000 Maximum Credit.
2 Children x $1,000 = $2,000
Step 2: Determine the modified adjusted gross income (MAGI) which is calculated on your Form 1040.
MAGI = $80,000
Step 3: Subtract the MAGI by the limitation mentioned above based on your filing status. If your MAGI is less than the limitation, you are eligible for the full credit of $1,000.
$80,000 – $75,000 (limitation for single filers) = $5,000.
Step 4: For every $1,000 the MAGI exceeds the limitations above, the amount of tax credit allowed to be claimed is reduced by $50.
5 x $50 = $250.
Step 5: $2,000 – $250 = $1,750. This is maximum amount of child tax credit that this individual can claim.
Additional Child Tax Credit
Generally, the Child Tax Credit is a non-refundable credit. This means that the tax credit can only offset tax liability to $0 but any excess will not be refunded to the individual. However, in certain cases, individuals can claim the additional child tax credit which is a refundable tax credit. A refundable tax credit can lower the tax liability to $0 and any excess will result in additional refund to the taxpayer.
The additional child tax credit is available to those who earned over $3,000 of income and did not claim the full child tax credit. The calculation for this credit can get more complex so it’s advised to use tax software or contact your tax advisor. Part 2 of Schedule 8812 will be used to claim the refundable Additional Tax Child Credit.
How to Claim the Child Tax Credit
The child tax credit must be claimed on Form 1040, line 52; Form 1040A, line 35; or Form 1040NR, line 49. You must identify each child with their name and social security number. If the child you are claiming has an Individual Taxpayer Identification Number (ITIN) instead of a social security number, Schedule 8812 will need to be prepared and attached with your tax return.
The Child Tax Credit is designed to help families with children and reduce the number of children living in poverty. This tax credit has helped millions of families with the high costs of child care. The calculation for the credit is fairly simple and can be calculated using the IRS worksheet or by using TurboTax online software.