Tuesday Tax Tip: Save Money with Child Tax Credit
Around fifteen years ago, our fine members of congress wanted to
get reelected help offset the cost of raising children, so they passed the Child Tax Credit. Currently the child tax credit can knock $1,000 off your tax bill for each qualifying child under the age of 17. I said “currently” because the credit will jump back to $500 per child at the end of 2012 unless congress extends it.
List of 9 Facts for Child Tax Credit
The Child Tax Credit is an important tax credit that may be worth as much as $1,000 per qualifying child depending upon several factors. Let’s dive into 9 important factors from the IRS about qualifying for this credit and how it may help your family:
- Amount – With the Child Tax Credit, you may be able to cut your federal income tax by up to $1,000 for each qualifying child under the age of 17.
- 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 2011.
- 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. An adopted child includes a child lawfully placed with you for legal adoption.
- 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 2011. There are some exceptions to the residence test, which can be found in IRS Publication 972, Child Tax Credit.
- 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. 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. The adjusted gross income limit (on Form 1040, line 37) for claiming the Child Tax Credit are as follows:
• $110,000 if you’re married filing jointly
• $ 55,000 for those married, filing separately
• $ 75,000 all other filing options
How To Claim Child Tax Credit
When claiming the child tax credit, you will need to give the IRS your child’s name, birth date and social security number or proper legal ID. Unless you give this data on your tax return, you can’t claim the Child Tax Credit.
Where to claim this credit will depend on the tax form you file. This credit can’t be claimed if you file Form 1040EZ or Form 1040NR-EZ. Report this credit as follows:
• Form 1040 = Line 51
• Form 1040A = Line 33
• Form 1040NR = Line 48
More information is available at IRS.gov and reading Publication 972, Child Tax Credit.
Before I end today, I need to include a reminder: State and federal taxes can be confusing and complex, you should contact your tax advisor on what you can and can not include on your tax return.