What You Need to Know About the Child Tax Credit

Larry Villano, Publisher of Loopholelewy.com

If you have a child under age 17, you could be eligible for the Child Tax Credit, which can save you some cash. The nice thing about a tax credit is that it is a dollar-for-dollar reduction of your tax liability. So, if your federal income tax liability is $800 and you claim a tax credit of $500, your tax liability is reduced to $300, a $500 savings!

Here's What You Need to Know

Amount:

The child tax credit is subtracted from your federal income tax up to $1,000 for each qualifying child you claim on your tax return.

It is a non-refundable credit:

There are refundable credits and non-refundable credits. Examples of refundable tax credits are, the Earned Income Credit (EIC) and the Additional Child Tax Credit (see the bottom of this post). The Child Tax Credit is a non-refundable credit (don't confuse this with the Additional Child Tax Credit, which is refundable).

All this means is, if the credit exceeds your tax liability, the excess amount will be refunded to you if it is a refundable credit. If the credit is a non-refundable credit, like the Child Tax Credit, the excess amount will not be refunded.

Qualifying for the Child Tax Credit:

A child must pass seven tests to qualify for this credit:

  1. Age: The child was under age 17 at the end of 2013.
  2. Relationship: The child is 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 meet this test. Adopted children also qualify. An adopted child includes a child lawfully placed with you for legal adoption.
  3. Support: The child did not provide more than half of his or her own support for 2013.
  4. Dependent: You claim the child as a dependent on your 2013 federal income tax return.
  5. Joint return: A married child does not file a joint return for 2013 (or files it only to claim a refund). Since this credit applies to children 16 years old or younger, this is not a common situation.
  6. Citizenship: The child must be a U.S. citizen, U.S. national or U.S. resident alien. For more see Publication 519, U.S. Tax Guide for Aliens.
  7. Residence: In most cases, the child must have lived with you for more than half of 2013.

Limitations:

Your filing status and income may reduce or eliminate the credit.

Additional Child Tax Credit:

If you get less than the full Child Tax Credit, you may qualify for the refundable Additional Child Tax Credit . This means you could get a refund even if you owe no tax.

Schedule 8812:

If you qualify to claim the Child Tax Credit, make sure to check whether you must file Schedule 8812, Child Tax Credit, with your return. If you qualify to claim the Additional Child Tax Credit, you must complete and attach Schedule 8812.

Don't worry about figuring all this stuff out on your own. You can do your taxes online here by clicking on the TurboTax image at the top of this page. You will be walked through each step to see if you qualify for this credit. You'll also get step-by-step guidance for the rest of your return.

If you want more information about the child tax credit see IRS Publication 972.