Tax Tips

 
Tax Tip
What is the Child Tax Credit?
The Child Tax Credit is a credit worth up to $1,000 for each qualifying child at the end of the year. If you have 4 children, the credit can cut your tax bill by up to $4,000. Remember, a credit offsets your tax bill dollar for dollar. A child must meet 5 criteria for you to receive child-related tax benefits. He or she:

  • must be your son, daughter, stepchild, foster child, brother, sister or a descendant of any of them
  • must be younger than 17
  • could not have provided more than half of his or her own support
  • must live with you more than half the year
  • must be a U.S. citizen, U.S. national or resident of the U.S.

Child Tax Credit for Individuals with Higher Incomes
The Child Tax Credit is available regardless of your filing status. However, your credit is reduced if your modified adjusted gross income (MAGI) is more than:

  • $110,000 if Married Filing Jointly
  • $75,000 if Single, Head of Household or Qualifying Widow(er)
  • $55,000 if Married Filing Separately

For every $1,000 (or fraction of $1,000) your MAGI exceeds the trigger point, you lose $50 of credit.

For example, if you file a joint return and your MAGI is $115,000, the extra $5,000 exceeding the limit would reduce your credit by $250. So if you have only 1 dependent child in 2007, your credit would be $750. If you have 3 children who qualify, though, your credit would be $2,750 ($3,000 minus $250).

Additional Child Tax Credit
The Child Tax Credit can't reduce your tax below zero. However, if your Child Tax Credit is limited by your tax, you may be eligible for the additional Child Tax Credit,even if your tax liability is zero. You may be eligible if:

  • your taxable earned income is more than $11,300
  • you have 3 or more eligible children and the Social Security and Medicare tax you paid is more than your Earned Income Credit

If you qualify, you'll need to file Form 8812.

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Frequently Asked Questions
Question: My wife and I are divorced. We share custody of our son. Which one of us gets to claim the Child Tax Credit?
Answer: The Child Tax Credit is claimed by the parent who claims the dependent exemption for your son.

Question: What do I do if my child has no social security number?
Answer: All children must have a social security number for that child to be claimed as a dependent and for various credit benefits. Exceptions to this rule are Amish or Mennonite children, or children who were born and died in the year of filing. If you do not have a social security number for the child, file Form 4868 to request additional time to apply for and receive the child's social security number.

Question: What is the difference between a credit and a deduction?
Answer: A credit reduces your tax liability dollar for dollar. A deduction reduces your income subject to tax.

More Tax Credit FAQs
Related IRS Forms & Publications

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