[2013 Update] For 2013, the Child Tax Credit was set to drop to $500. However with the fiscal cliff deal the child tax credit maximum for each eligible under-age-17 child was kept at $1,000 for 2013 and also extended through 2017. The deal also contains provisions to make the 2013 Child Tax Credit available to more working families that previously could not benefit from it by raising income qualification thresholds, which are not indexed to inflation and instead set by statute.
For 2012 the child tax credit started phasing out (reducing) for those above a specified modified adjusted gross income (MAGI). 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. The credit is reduced/phased-out by $50 for each $1,000 of income above the income threshold amounts.
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 (AMT) you owe. Other qualification details for the credit, per the update below, are set to remain the same.
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As part of bush-era tax cuts extension legislation (Tax Relief, Unemployment Insurance Re-authorization, and Job Creation Act of 2010), a number of popular tax breaks were extended. This includes the valuable tax credit for dependent children that many parents have taken advantage of over the last few years. Thanks to past legislation the child tax credit was doubled to its current level of $1,000, plus making the eligibility and qualification thresholds lower so that more families can take advantage of it. The latest legislation keeps all past rules intact and funds the credit for another two years.
Child Tax Credit
Under the recently approved legislation, the Child Tax Credit (CTC) of $1,000 per child under 17 years-old will continue to be available in 2011 and 2012 to tax paying parents or legal guardians on the child. This credit is the largest tax provision benefiting families with children. Full CTC eligibility is subject to income limits of $110,000 for married couples and $75,000 for single parents. After these income levels the credit is reduced by 5% of adjusted gross income. Because it is a credit, and not a tax deduction, taxpayers receive it is a refund if no taxes are owed. The IRS has published some other additional information around claiming and qualifying for the credit:
Additional Qualification – A qualifying child for this credit is someone who meets the qualifying criteria of six tests: age, relationship, support, dependent, citizenship, and residence.
- Age Test – To qualify, a child must have been under age 17 – age 16 or younger – at the end of the year in which the credit is being claimed for
- Relationship Test – To claim a child for purposes of the Child Tax Credit, they must either be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals, which includes your grandchild, niece or nephew. An adopted child is always treated as your own child.
- Support Test – In order to claim a child for this credit, the child must not have provided more than half of their own support.
- Dependent Test – You must claim the child as a dependent on your federal tax return.
- Citizenship Test – To meet the citizenship test, the child must be a U.S. citizen, U.S. national, or U.S. resident alien.
- Residence Test – The child must have lived with you for more than half of the year you are the claiming the credit for.
- Income Limitations – The credit is limited if your modified adjusted gross income is above a certain amount. The amount at which this phase-out begins varies depending 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. The credit is reduced/phased-out by $50 for each $1,000 of income above the income threshold amounts. The phaseout ranges are set by statute and so are not adjusted for inflation.
- 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.
- Additional Child tax Credit – If the amount of your Child Tax Credit is greater than the amount of income tax you owe, you may be able to claim the Additional Child Tax Credit (ACTC). The ACTC is equal to the lesser of the unallowed Child Tax Credit, or 15% of your earned income that is more than $3,000.
The Child tax credit can be claimed in addition to the existing credits for Child Dependent Care expenses.