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All About Child Tax Credits

Update: On December 22, President Trump signed the GOP’s sweeping tax bill into law. Under the new tax code, the child tax credit will increase from $1,000 to $2,000. This begins for tax year 2018 (when you file taxes in April 2019). Additionally, the plan adds a $300 credit for each non-child dependent or parent for five years. For more on Trump’s tax plan, see this article.

Depending on your income, you may be eligible for a child tax credit of up to $1,000 per child. (The credit is worth up to $2,000 for the 2018 tax year.) Remember that unlike a tax deduction, a tax credit is a dollar-for-dollar reduction in your tax bill. Sound good? Here’s what you need to know about the child tax credit, from the eligibility requirements to how to claim it. For starters, you need to be the parent or guardian of a minor child.

What Is the Child Tax Credit?

Child tax credits are designed to give an income boost to the parents or guardians of dependent children. How much is the child tax credit? That depends on your income. The child tax credit lets you reduce your federal income tax bill by up to $1,000 for each qualifying child under the age of 17 that you claim as a dependent. For 2017, the child tax credit is up to $1,000 per child.

The child tax credit is just that – a tax credit. It’s not a deduction. Because it’s a tax credit, it directly reduces the amount you owe the IRS. So, if your tax liability is $3,000 but you’re eligible for, say, $800 of child tax credit, you now owe $2,200.

The child tax credit is non-refundable for 2017. (The credit will be refundable in the 2018 tax year for up to $1,400.) That means that if you’re eligible for $3,000 in tax credits but only owe the IRS $2,000, you won’t get the $1,000 difference refunded to you. Technically, you can get that $1,000, but you’ll have to claim what’s called the Additional Child Tax Credit – assuming you’re eligible to do so. We’ll get to that.

Child Tax Credit Eligibility

Eligibility for the child tax credit hinges on a few factors. One of them, of course, is whether you are the parent or guardian of minor children. The child you claim as your dependent has to meet six IRS tests:

  1. Age Test: The child you claim as your dependent must have been under age 17 (so, 16 or younger) at the end of the tax year.
  2. Relationship Test:  The child must be your daughter, son, foster child or adopted child. The child can also be a grandchild or a descendant of one of your siblings.
  3. Support Test: The child must not have provided more than half of their own “support,” meaning the money they use for living expenses.
  4. Dependent Test: The child must be claimed as your dependent on your federal income tax return.
  5. Citizenship Test: The child must be a U.S. citizen, a U.S. national or a U.S. resident alien.
  6. Resident Test: The child must have lived with you for more than half of the tax year (with a few exceptions detailed on the Child Tax Credit worksheet).

In addition to these six tests, income is also an eligibility factor.

Eligibility for the child tax credit isn’t all-or-nothing. There’s such a thing as the child tax credit income phase-out. As your modified adjusted gross income (MAGI) increases, the child tax credit begins to phase out. You’ll get $50 less in child tax credits for every $1,000 – or portion of $1,000 – that your modified AGI exceeds:

  • $75,000 if you’re filing as the head of your household, single or as a qualifying widow(er)
  • $110,000 if your filing status is married filing jointly
  • $55,000 if your filing status is married filing separately

As you can see, it’s possible to be so rich that you’re ineligible for the child tax credit.

Claiming the Child Tax Credit

All About Child Tax Credits

Eligible filers will claim the child tax credit on Form 1040, Form 1040A, or Form 1040NR. Unfortunately for those who like the simplified versions of the tax form (Form 1040NR-EZ or Form 1040EZ), you can’t claim the child tax credit on those worksheets.

The IRS provides Publication 972 The Child Tax Credit as a child tax credit worksheet to help you calculate the child tax credit. It’s not a child tax credit calculator per se but it will tell you how much you can claim in child tax credits on your Form 1040, Form 1040A, or Form 1040NR.

Want to know how to calculate the child tax credit? Look no further than Publication 972. The publication starts with some introductory material to help you understand the tax credit and who’s eligible. The worksheet comes later.

The Additional Child Tax Credit

The child tax credit itself is non-refundable. That means that if the amount of credit you’re eligible for is greater than the amount you owe the IRS, you won’t get the difference back in your tax refund. To get that money, you can file for what’s called the Additional Child Tax Credit, assuming you’re eligible.

The 2009 American Recovery and Reinvestment Act (ARRA) expanded the eligibility for the additional child tax credit. The law reduced the minimum amount of earned income used in calculating the additional child tax credit to $3,000. This change made more taxpayers eligible for the credit and raised the amount they could claim.

Before you file for the additional child tax credit, you’ll need to fill out the paperwork for the regular child tax credit. According to the IRS:

  1. If you answered “Yes” on line 9 or line 10 of the Child Tax Credit Worksheet in the Form 1040, Form 1040A, or Form 1040NR instructions (or on line 13 of the Child Tax Credit Worksheet), use Parts II – IV of Schedule 8812 to see if you can take the additional child tax credit.
  2. If you have an additional child tax credit on line 13 of Schedule 8812, carry it to Form 1040, line 67; Form 1040A, line 43; or Form 1040NR, line 64.

The Child and Dependent Care Tax Credit (CDCTC)

The child tax credit and the childcare tax credit are two different things. The child tax credit can only be claimed by the parents or guardians of minor children. On the other hand, the child and dependent care tax credit can also be used by those who are caring for aging parents or disabled relatives.

With the Child and Dependent Care Tax Credit, you can’t claim more than $3,000 of care expenses for one child/dependent. If you have two or more children/dependents, you can’t claim more than $6,000 of care expenses. Technically, there’s no income phase out if you’re trying to claim the CDCTC, but the credit can only equal up to 35% of your qualifying care expenses (depending on your AGI).

What counts as a care expense? According to the IRS rules on the CDCT, “If you paid someone to care for your child, spouse, or dependent last year, you may be able to claim the Child and Dependent Care Credit.” You must have secured a caregiver who you paid so that you or your husband or wife (if filing jointly) could go to work or hunt for a job. To claim the federal credit, fill out IRS Form 2441.

State Child Tax Credits

Some states offer a complementary state-level child tax credit and/or CDCTC that matches part or all of the federal credit. In some states, the credits are refundable and in other states they are not. Check out this map for state-by-state details.

The Takeaway

All About Child Tax Credits

The IRS offers child tax credits to help parents and guardians offset some of the costs of raising a family. Some people who are eligible for these child tax credits never claim them, however. If you’re eligible, don’t leave money on the table. You could be reducing or eliminating your tax bill, or earning a bigger refund. Who doesn’t want that?

For further help reducing your tax bill, consider working with a financial advisor who specializes in taxes to craft a financial plan. Having a financial plan can be key to ensuring you’re taking everything in account come tax season. A matching tool like SmartAsset’s can help you find a person to work with to meet your needs. First you answer a series of questions about your situation and your goals. Then the program narrows down thousands of advisors to three fiduciaries who meet your needs. You can then read their profiles to learn more about them, interview them on the phone or in person and choose who to work with in the future. This allows you to find a good fit while doing much of the hard work for you.

Tips for Saving Money on Your Taxes

  • The Child Tax Credit is just one way to reduce your income tax bill. If you need help finding other credits or deductions that you qualify for, a tax filing software may be able to help you. SmartAsset looked through common tax filing services to find the best online tax software for your specific situation.
  • Some savings options, like a health savings account or 401(k), allow you to contribute pre-tax money. These options minimize your taxable income, potentially dropping you into a lower tax bracket.
  • If you get a refund after paying your taxes, you should consider putting it into a high-interest savings account. That way, you can make your money work for you over the course of the year. Check out the CIT Bank Money Market Account. It offers 1.85% interest (20x the national average) and doesn’t charge any service fees. You can open an account with a $100 minimum deposit.

Photo credit: ©iStock.com/Christopher Futcher, ©iStock.com/gruizza, ©iStock.com/DragonImages

Amelia Josephson Amelia Josephson is a writer passionate about covering financial literacy topics. Her areas of expertise include retirement and home buying. Amelia's work has appeared across the web, including on AOL, CBS News and The Simple Dollar. She holds degrees from Columbia and Oxford. Originally from Alaska, Amelia now calls Brooklyn home.
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