This post has been updated for the 2015 and 2016 calendar years.
What is the Child Tax Credit?
As part of the American Taxpayer Relief Act of 2012 (aka the “Fiscal Cliff Deal”), signed in to law on Jan 3, 2013, the Child Tax Credit was extended permanently. So, for those of you planning on having your first or more children this year, you can keep on pro-creatin’, or adopting, kidnapping – whatever means you need.
The Child Tax Credit allows you to claim a maximum $1,000 per qualified child. This is a non-refundable income tax credit (with the possibility for it to be refundable through the Additional Child Tax Credit), meaning that if your credit exceeds your income tax liability, then you won’t get a check for the difference. It also means that it is a subtraction from your actual taxes owed, which is much more valuable than a deduction (which is a subtraction from your actual income). And, the image in this post is technically wrong! Oh well.
Pertaining to the credit, if your income is below a certain threshold, you can also claim the ‘Additional Child Tax Credit‘, which allows you to get a refund for the difference if your credit exceeds your tax liability.
Update: with the Congressional budget deal extender legislation that was passed, the maximum $1,000 Child Tax Credit’s refundability through the Additional Child Tax Credit was made permanent (refundable credits can result in actual cash back versus the less attractive non-refundable credit, which can only be deducted from tax liability). With the Child Tax Credit, the amount that may be refunded is equal to 15% of earned income (see my post on the earned income credit, which can be claimed separately as well) above $3,000. The $3,000 threshold had been set to expire in 2017 and reset to $10,000, which would have reduced the refundable amount of the credit available. The $3,000 threshold was permanently extended as well.
What is a Qualified Child?
According to the IRS Child Tax Credit FAQ, a qualifying child for this credit is someone who meets the qualifying criteria of six tests: age, relationship, support, dependent, citizenship, and residence.
- Age Test: To qualify, a child must have been under age 17 – age 16 or younger – at the end of the year.
- Relationship Test: To claim a child for purposes of the Child Tax Credit, they must either be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals, which includes your grandchild, niece or nephew. An adopted child is always treated as your own child. An adopted child includes a child lawfully placed with you for legal adoption.
- Support Test: In order to claim a child for this credit, the child must not have provided more than half of their own support.
- Dependent Test: You must claim the child as a dependent on your federal tax return.
- Citizenship Test: To meet the citizenship test, the child must be a U.S. citizen, U.S. national, or U.S. resident alien.
- Residence Test: The child must have lived with you for more than half of the tax year. There are some exceptions to the residence test, which can be found in IRS Publication 972, Child Tax Credit.
Can you Claim a Child Tax Credit in the Year the Child was Born?
After looking at the ‘residence test’ above, I was left wondering whether or not you could claim the Child Tax Credit in the year the child was born if the child was born in the second half of the year. Publication 972 lists this as one of the exceptions in which you can claim the credit.
Child Tax Credit Income Levels
The Child Tax Credit is limited if your MAGI is above a certain amount. The amount at which this phase-out begins varies depending on your filing status. For married taxpayers filing a joint return, the credit phase-out begins at $110,000. For married taxpayers filing a separate return, it’s at $55,000. For all other taxpayers, the phase-out begins at $75,000.
There are also tax credits for child care.
Have you claimed the Child Tax Credit? How much did it save you?