There’s no disputing the fact that raising children today is a costly endeavor. However, the American Taxpayer Relief Act of 2012 (ATRA) has eased parents’ tax burden and put a few dollars back in their pockets with the Child Tax Credit, which ATRA made permanent. This tax credit can be worth as much as $1,000 per qualifying child depending upon a parent’s income.
Because it is a tax credit rather than a tax deduction, which simply reduces taxable income, the Child Tax Credit reduces a parent’s tax liability dollar for dollar with the amount of the allowable credit. However, the credit cannot be taken for more than the amount of tax owed to the IRS.
To see if you qualify for the Child Tax Credit, the IRS provides the following seven tests:
- Age test—The child being claimed must have been under the age of 17 at the end of 2013.
- Relationship test—The child being claimed must also be your son, daughter, stepchild, foster child, brother, sister, stepbrother, or stepsister. A child can also be a descendant of any of these persons. For example, your grandchild, niece, or nephew will qualify. An adopted child includes a child lawfully placed with you for legal adoption.
- Support test—The child must not have provided more than 50 percent of his or her own support for 2013.
- Dependent test—The child must be claimed as a dependent on your 2013 federal income tax return.
- Joint return test—A married child can’t file a joint return with his or her spouse if the couple is filing jointly only to claim a tax refund.
- Citizenship test—The child being claimed must be a U.S. citizen, U.S. national, or U.S. resident alien.
- Residence test—In general, the child being claimed must have lived with you for more than half of 2013 to be claimed. However, a child is considered to have lived with you for more than half of 2013 if the child was born or died in 2013 and your home was this child's home for more than half of the time he or she was alive.
It is important to note that your filing status and income may reduce or eliminate the Child Tax Credit. If your modified adjusted gross income is more than $110,000 (married filing joint), $55,000 (married filing separately), or $75,000 (single, head of household) you cannot claim the credit.
If you qualify to claim the Child Tax Credit, you will need to file IRS Form 8812 with your income tax return. Please contact our office if you have any questions about this tax credit.