Tax Tips & Calculators

The child tax credit is worth up to $1,000 for each qualifying child. This credit can be both a nonrefundable and a refundable credit. The refundable portion of the child tax credit is called the additional child tax credit.

To qualify for the child tax credit, both of these must apply:

• The qualifying child must be under age 17 at the end of the year.
• The qualifying child must be a:
  
  • U.S. citizen
  • U.S. national
  • U.S. resident

Divorced and Separated Parents

The parent who claims the child as a dependent is eligible to claim the child tax credit. This is true even if the parent's filing status is married filing separately.

Income Phase-Out

When your income exceeds a certain level, the child tax credit begins to phase out. The credit is reduced $50 for every $1,000 – or portion of $1,000 – that your modified adjusted gross income (AGI) is more than:

• $75,000 if filing as single, head of household, or qualifying widow(er)
• $110,000 if married filing jointly
• $55,000 if married filing separately

For the purpose of this credit, modified AGI is your AGI plus foreign earned income, if any.

Ex: You and your spouse have 1 qualifying child and an AGI of $119,000. Since your income is more than the $110,000 limit by $9,000, the amount of your child tax credit will be reduced by $50 for every $1,000 that's more than the limit:

1. 9 x $50 = $450 (amount the credit must be reduced)
2. $1,000 (child tax credit amount) - $450 (reduction amount) = $550
3. Total amount you can claim is $550.

The $50 reduction applies fractionally by the thousand, so $119,001 is considered $10,000 over the married filing jointly phase-out limit. So, using the example above, you'd come up with:

1. 10 x $50 = $500 (amount the credit must be reduced)
2. $1,000 (child tax credit amount) - $500 (reduction amount) = $500
3. Total amount you can claim is $500.

Interaction With Other Credits

You can't carry forward any portion of the child tax credit to future years. To maximize the benefit of each credit, you must take the nonrefundable credits in a specific order. So you must sometimes calculate other credits first to properly apply the child tax credit.

Additional Child Tax Credit

If your child tax credit is limited, you might be eligible to claim the additional child tax credit. To qualify for the additional child tax credit, 1 of these must apply:

• Your earned income must be more than $3,000 for 2010.
• You must have 3 or more qualifying children.

If you have at least 1 qualifying child, you can claim a credit of up to 15% of the amount your earned income is more than $3,000. If you have 3 or more qualifying children, you can either

• Claim a refundable credit if the net Social Security and Medicare tax you paid is more than your Earned Income Credit (EIC)if any
• Use the 15% method described earlier.

Ex: You're eligible for the child tax credit of $1,000 for a qualifying child. Your earned income for the year is $7,000, and the tax liability for the year is $0. You can claim the additional child tax credit of $600:

($7,000 - $3,000) x .15 = $600.

In all cases, the credit is:

• Limited to $1,000 per qualifying child
• Reduced by the nonrefundable portion of the child tax credit

For the additional child tax credit, include combat pay as part of your earned income.

Use Form 8812 to figure the additional child tax credit.

To learn more, see IRS Publication 972: Child Tax Credit