The Child Tax Credit benefits millions of taxpayers with dependent children by directly reducing the amount of federal tax. The credit is easy to claim on federal tax forms and requires only that your child have a valid Social Security number, be under a certain age and live in your household. Although the credit is popular, it may be amended, reduced or eliminated altogether in the future.
The Child Tax Credit went into effect in 1998 as part of Section 24 of the Internal Revenue Code. The credit was originally set at $400 per qualifying child. Since that time the credit has increased to $1,000 per qualifying child but is set to decline to $500 per child for tax year 2011.
The child must be a United States citizen or legal resident and under 17 years of age at the end of the tax year for which you're filing. The child must be related to you or otherwise be a qualifying member of your household and family. Qualifying relationships include son, daughter, stepchild, foster child, legally adopted child, sibling, stepbrother or stepsister, or a descendant of any of these relations.
You must have provided at least half of the child's support during the tax year for which you're filing and must claim the child as a dependent on your own tax return. The child must have lived with you for at least half of the year. In the case of divorce or marital separation, the parties may agree in writing to the designation of a household for the child for the purposes of the credit. If more than one parent claims the child on separate returns, the filer who has had the child for the most time during the tax year may claim the credit; if the child resided for the same amount of time in each household, the credit is claimed by the parent with the higher adjusted income.
The amount of the credit is gradually reduced for married couples filing joint returns with an adjusted gross income of $110,000 or more, as of September 2010. For married couples filing separate returns, this phaseout begins at $55,000; for single and individual filers, it begins at $75,000. For every dollar earned, the tax credit is reduced by 5 cents. For example, married couples claiming a gross income of $111,000 would lose $50 of the available tax credit and receive a $950 credit for each child. For a $130,000 gross income, the credit phases out completely for married couples.
Additional Tax Credit
If the credit is a higher amount than the tax due, you may be able to claim an additional child tax credit. Your earned income must be less than $110,000 if you are married filing jointly, $75,000 if you're filing as single or head of household, and $55,000 if you're married filing separately, as of October 2010. The additional credit is the amount of the credit you were unable to claim, or 15 percent of your income over $3,000, whichever is less.
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