If you have children who are under 17 as of the end of the tax year, you can get a $1,000 tax credit per child on your tax return.
Because this is a credit, not a deduction, you get to take those dollars right off your tax bill. That makes this much better than a deduction would be, which would just reduce the income you use to determine taxes.
And the credit does not affect the exemptions you take for dependents. The credit is in addition to your exemptions.
To claim the credit you must meet these tests, to qualify for the credit:
- The dependent must be a U.S. citizen or resident, and a blood or adoptive son, daughter, stepchild, or grandchild. Foster children qualify if they lived with you as members of your household for all of 2005.
- You must report each qualifying child's tax identification number (TIN) (usually the child's Social Security number) on your return for the year that you take the credit.
You can calculate your child tax credit using the worksheet provided in the instructions for Form 1040, line 52, or Form 1040A, line 33.
Or, let TurboTax walk you through the entire qualification process step-by-step.
How Much You Get
In most cases, the child tax credit is limited to the amount of tax liability on your return (in other words, if your credit is bigger than your tax liability, your tax liability is just reduced to zero, and the rest of the credit is lost).
In certain cases, though, you can get a child tax credit refund when the credit exceeds your tax liability. This means that you would get a refund of the difference between your tax credit and what you owe in taxes. This refundable child tax credit is called the Additional Child Tax Credit, which you calculate on Form 8812.
This credit is refundable for families with three or less qualifying children, to the extent of 15 percent of taxable earned income in excess of $11,000 for 2005. For families with four or more qualifying children, the refundable amount may be the excess of the family's social security tax over the earned income credit, or the extent of 15 percent of taxable earned income in excess of $11,000, whichever is greater.
Herb and Susan had a bad year, making only $25,000 on their sheep ranch. They have four children under 17. Their taxable income was zero, so they owed zero in taxes, but they got an additional child tax credit refund worth $1,835, or the excess of the family's social security tax over the earned income credit, whichever is greater.
The otherwise allowable child tax credit is phased out for taxpayers with modified adjusted gross income (defined below) above certain thresholds. The amount of the credit is reduced (but not below zero) by $50 for each $1,000 (or fraction thereof) by which the taxpayer's modified adjusted gross income exceeds the threshold amount. The threshold amount is:
- $110,000 in the case of a joint return
- $75,000 in the case of an unmarried individual
- $55,000 in the case of a married individual filing a separate return
The total you can take is $1,000 per child, although part of that can be a tax credit, and the rest in a refund. Families with three or more children can calculate the refundable credit as they did last year if it results in a larger amount.
If you pay the Alternative Minimum Tax, you can use the child tax credit to offset that.
Something to keep in mind: the child tax credit rate of $1000 per child has been extended through 2009.
You can use the Free Tax Estimator provided by Turbo Tax Online to estimate your Child Tax Credit. You can also find plenty of Free help & information to Prepare & File Your Taxes Online and get all the tax deductions and credits possible.
