The Federal Child Tax Credit

You May Be Eligible to Claim Up to $1,000 Per Child

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Parents and guardians who are eligible to claim their children as dependents on their tax returns​ receive quite a few tax breaks. In addition to being able to claim personal exemptions for each of their children, they may also qualify for a variety of related tax credits. One of these is the child tax credit, worth up to $1,000 per child in the 2016 and 2017 tax years. 

The Basics of the Child Tax Credit

You can claim the child tax credit for each of your children under the age of 17.

Some other rules apply as well, so all your dependents may not necessarily qualify.

Qualifying for and claiming the child tax credit can reduce any tax you owe to zero. Unlike tax deductions which reduce your taxable income, tax credits are subtracted from your tax liability.

The amount of the child tax credit is gradually reduced as a taxpayer's income increases. Technically, there's no limit to how many children you can claim for purposes of this credit, but additional dependents can make a taxpayer vulnerable to the alternative minimum tax and the AMT has the potential for offsetting any additional child tax credits for larger families. In other words, the credit and this other tax can effectively cancel each other out. 

Qualifying for the Child Tax Credit

The rules for the child tax credit generally mirror those for claiming children as dependents, but there are some notable differences.

Qualifying children for the child tax credit must meet all nine of the following rules:

  1. The child is related to you as your son, daughter, stepchild, foster child, adopted child, brother or sister. He may also be a descendant of any of these relatives, such as a grandchild, nephew or niece
  2. The child lived with you for more than half the year.
  1. The child was younger than age 17 on the last day of the year. He hadn't yet celebrated his 17th birthday by Dec. 31. This is different from claiming him as a dependent where children younger than age 19 qualify, or even age 24 if he's a full-time student.
  2. The child did not provide more than half his own financial support during the tax year. 
  3. The child is a citizen or a resident alien of the United States.
  4. The child is younger than you. 
  5. The child does not file a joint tax return with his or her spouse, although some exceptions apply.
  6. You're eligible to claim the child as your dependent. 
  7. You are the child's parent, or your adjusted gross income is higher than the adjusted gross income of either of his parents.

Income Limitations and Phaseouts

Like some other tax credits, the child tax credit is gradually reduced as a taxpayer's income increases. This begins at the following thresholds:

  • $55,000 for married couples filing separately
  • $75,000 for single, head of household and qualifying widow(er) filers
  • $110,000 for married couples filing jointly

The child tax credit is reduced by $50 for each $1,000 of your excess income over these threshold. For example, if you qualify for head of household filing status and you earn $76,000, your child tax credit would drop to $950.

These phaseout ranges are set by statute and they're not indexed annually for inflation, which means they won't increase automatically over the years unless Congress takes special steps to address them.

It's a Non-Refundable Credit ... Sort Of

​Typically, a non-refundable tax credit can only reduce or eliminate your tax bill. If you owe the IRS $2,000 and you can claim a $1,000 tax credit, you'd only have to pay the IRS $1,000. If you owe $1,000 in taxes, you wouldn't owe anything at all – the credit erases your tax debt. If you owe only $500, you wouldn't have to pay anything, but the IRS would not send you a refund for the remaining $500 unless the tax credit was refundable. 

​Technically, the child tax credit is non-refundable. But there's another credit available called the additional child tax credit which is refundable.

This one works as something of an offshoot of the original child tax credit. If you have one or two children, applying the additional child tax credit can result in a refund equal to the smaller of the unused portion of the child tax credit or 15 percent of your income over $3,000. ​Claiming the additional child tax credit usually works out so that the unused balance of your child tax credit becomes eligible for a refund.

If you have three or more children, the refundable portion of the child tax credit is the smaller of the unused portion of your child tax credit or 15 percent of your earned income over $3,000, or the total of the Social Security and Medicare taxes you paid minus the amount of the earned income credit.

This $3,000 threshold was originally a temporary provision. It was intended to apply only through 2017. The Protecting Americans from Tax Hikes Act of 2015 made it permanent, so the threshold will remain at $3,000 for future tax years. It's not indexed for inflation.

Tax Planning Tips for the Child Tax Credit

Tax credits must be taken in a certain order, and the child and dependent care credit and the adoption credit are both taken before the child tax credit. Claiming those credits can help reduce your federal tax liability and correspondingly increase the refundable portion of your child tax credit.

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