The Child Tax Credit has been extended for five years – here’s how to claim it
The $1,000 Child Tax Credit, which was created by the Bush tax cuts, was set to expire at the end of 2012. However, the fiscal cliff deal signed on January 3, 2013 extended the current Child Tax Credit for the next five years.
What is the Child Tax Credit?
The Child Tax Credit offers a credit of up to $1,000 per child to qualifying taxpayers. It is only available to those who can claim a child as a dependent and meet several other requirements.
There is no limit to the number of child you can claim using the Child Tax Credit, however, claiming lots of kids may subject you to the Alternative Minimum Tax (AMT).
Who can claim the Child Tax Credit?
In order to claim the Child Tax Credit, the child in question must
- be your son, daughter, stepchild, foster child, adopted child, brother, sister, or a descendant of any of these
- have lived with you for more than half the year
- be under age 17 at the end of the year
- not have provided more than half of his/her own support
- be a citizen or resident alien of the United States
- be younger than you
- not file a joint return with his/her spouse (though there are exceptions)
- meet the requirements to be claimed as your dependant
- be claimed by his/her parents – if claimed by someone else, that person must have a higher AGI than either parent.
Are there income limitations?
The Child Tax Credit phases out beyond certain levels of income:
- $55,000 for married couples filing separately
- $75,000 for single, head of household, and qualifying widow(er)
- $110,000 for married filing jointly
The credit is reduced by $50 for every $1,000 of income beyond these thresholds. Note that they are not indexed for inflation.
How much of the credit is refundable?
Generally if credits and deductions manage to reduce your tax liability to zero, you don’t receive the remaining amount as a refund. In other words, the best you can hope for is to break even – there’s no chance of making a profit from your tax return.
But if the Child Tax Credit helps reduce your tax liability to zero, the remaining amount may be refunded to you in the form of the Additional Child Tax Credit. Exactly how much is refundable, however, depends on how many kids you have and how much you make.
Taxpayers with one or two children can receive the smaller of
the unused portion of the Child Tax Credit, or
15% of your earned income over $3,000
Taxpayers with three or more children can receive the smaller of
the unused amount or,
the larger of either
15% of a person’s earned income over $3,000, or
the sum of Social Security and Medicare taxes paid minus the earned income credit
Keeping track of all these IRS rules and regulations can get confusing. Thankfully RapidTax keeps things simple. Just enter your information into its online application and it will make sure you claim every cent of the Child Tax Credit that you deserve.
Photo via lorenkerns on Flickr.