Child Tax Credit is the relief provided by the government to the qualifying taxpayer when he has a dependent child whose expenses cannot be borne by the income earned. The credit may be equivalent to even 1000 dollars per qualifying child based on the income one earns through the year.
The federal income tax can be significantly reduced by availing the tax credit for each child below seventeen years of age. The qualification of the child will be tested on six parameters namely age, relationship with tax payer, dependent, support, residence and citizenship. The relationship with the child for the credit has to be established as per the qualification criteria.
The child can be the taxpayer’s daughter, son, foster child, stepchild, sister, stepsister, brother, stepbrother or a descendent of aforesaid individuals which means niece, nephew or grandchildren. Adopted child who has been legally placed with the taxpayer for lawful adoption is also considered one’s own child. The child under no circumstance should provide more than half of his own support.
Child Tax Credit will automatically flow once the taxpayer claims the child as dependent in the federal tax return. The citizenship criteria entails that the dependent should be a US national, citizen or resident alien. The child must have stayed with the payer for more than half of the taxpaying year. IRS Publication 972 allows for some exceptions.
The credit gets limited when the modified adjusted gross income of taxpayer exceeds a stipulated amount. This amount is dependent on the filing status. Married taxpayers experience the phase out at $110,000 when joint return is filed, and at $55,000 in the event of separate filing. General taxpayers find this phase out beginning at $75,000. The child tax credit is limited by the income tax amount owed along with any alternative minimum tax owed. If the child tax credit amount exceeds the income tax owed, one can claim additional child tax credit.