Claiming the Child Tax Credit

The Child Tax Credit Can Mean Big Tax Savings

Mother and baby boy reclining on sofa with laptop
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Having children often comes with a sizable price tag. The U.S. Department of Agriculture puts the average cost of raising a child through age 17 at $233,610. That doesn't include the cost of a college education. 

Fortunately, the Internal Revenue Service affords parents and other adults with dependent children a way to recoup some of the expense of raising kids in the form of the Child Tax Credit. This may come as a surprise to many new parents, but it’s important to plan for so that you can make the most of your money.

This credit, which is worth up to $1,000 per child for the 2017 tax year, increasing to $2,000 per child beginning in 2018, can reduce your tax liability for the year. Unlike a tax deduction, which lowers your taxable income, a tax credit reduces your tax bill dollar-for-dollar. If you have one qualifying child, the credit reduces what you owe the IRS by the full amount of the credit. You can claim the credit for more than one child, increasing your overall tax benefit.

There is one caveat to note: the credit is limited to those with certain incomes. Understanding the income and dependency guidelines can help you determine whether you qualify for the Child Tax Credit, and how to claim it. 

Determining Eligibility to Claim the Credit

To qualify for the Child Tax Credit, you must be able to pass a few tests. First, your dependent must be a U.S. citizen or resident who is under age 17 at the end of the tax year. You can claim your child, stepchild, adopted child, grandchild or great-grandchild. You may also be able to claim foster children if they were placed with you by a court or other authorized agency. The child must  live with you for more than half the year in which you’re trying to claim the credit. The dependent also must not provide more than half of their own support, which is typically only an issue for older dependents.

It's also worth noting that you must file Form 1040 or 1040A in order to claim the child tax credit. You cannot currently claim the credit using Form 1040EZ.

Income Limits for the Child Tax Credit

Not all taxpayers are eligible claim this credit. Qualification is also based on your household income and filing status. For 2017 tax year, you can claim the credit if: 

  • You're married and filing jointly with a modified adjusted gross income of $110,000 or less
  • You're single, a qualifying widower, or head of household with an AGI $75,000 or less
  • You're married filing separately with an AGI of $55,000 or less

In 2018, the income limits increase to $400,000 for married couples filing jointly and $200,000 for all other tax filers. For either tax year, the amount of the credit is reduced for taxpayers who exceed the income guidelines. 

For 2017, the Child Tax Credit is nonrefundable, meaning that if you do not have enough tax owed, the credit would be reduced so that no refund would be issued. If you don’t qualify for the full amount of the credit, you may still be eligible for a child-related tax break in the form of the Additional Child Tax Credit. 

Additional Child Tax Credit

The Additional Child Tax Credit is a refundable tax credit for those who had a qualifying child and did not receive the full amount of the Child Tax Credit. Since this is a refundable credit it is possible to get a refund even if you do not have any tax liability.

Qualifying for the Additional Child Tax Credit in 2017 has the same qualifying and income guidelines. The additional child tax credit is equal to the lesser of the unallowed child tax credit or 15% of your earned income that is more than $3,000. If you did not have earned income of more than $3,000 you may then qualify to claim the Additional Child Tax Credit up to the amount of Social Security taxes paid during the tax year.

Beginning in 2018, the Additional Child Tax Credit will be merged into the Child Tax Credit. Instead of the Child Tax Credit being nonrefundable and eligible taxpayers claiming the Additional Child Tax Credit, up to $1,400 of the Child Tax Credit will be refundable, subject to income phaseout limits. The expansion of the Child Tax Credit is designed to help offset the loss of personal exemptions, which takes effect for the 2018 tax year. 

Additional Tax Breaks for Parents

Aside from the Child Tax Credit, there are other tax breaks parents may benefit from. The Child and Dependent Care Credit, for example, is a credit that's designed to offset the cost of daycare or other child care expenses for qualifying children and parents. For 2017, the credit is worth up to $3,000 for one qualifying child and up to $6,000 for more than one qualifying child. 

Parents of college-age children may also benefit from claiming the tuition and fees deduction, or the student loan interest deduction for student loan interest paid on behalf of their child. Lower income families may be able to take advantage of the Earned Income Credit, which maxes out at $6,318 for 2017 and $6,444 for 2018. Maximizing every credit and deduction you're eligible for could shrink your tax bill, or increase your refund for the year. When in doubt, consult a tax professional to determine eligibility.