The non-refundable Child Tax Credit may help reduce your federal income tax by up to $1,000 for each child (under 17) you claim on your return. For this credit, the child must pass seven tests:
1. Age test. The child must have been under age 17 at the end of 2013.
2. Relationship test. The child must be your son, daughter, stepchild, foster child, brother, sister, stepbrother, or stepsister. A child may also be a descendant of any of these individuals, including your grandchild, niece or nephew. You would always treat an adopted child as your own child. An adopted child includes a child lawfully placed with you for legal adoption.
3. Support test. The child must not have provided more than half of their own support for the year.
4. Dependent test. You must claim the child as a dependent on your federal tax return.
5. Joint return test. The child cannot file a joint return for the year, unless the only reason they are filing is to claim a refund.
6. Citizenship test. The child must be a U.S. citizen, U.S. national or U.S. resident alien.
7. Residence test. In most cases, the child must have lived with you for more than half of 2012.
Additional Child Tax Credit is the refundable part of the child tax credit. If you qualify and get less than the full amount of the nonrefundable Child Tax Credit, you could receive a refund even if you owe no tax with the refundable Additional Child Tax Credit. The Additional Child Tax Credit is equal to the lesser of the rest of the nonrefundableChild Tax Credit, or 15% of your earned income that is more than $3,000.
The Child Tax Credit is subject to income limitations, and may be reduced or eliminated depending on your filing status and income. For married taxpayers filing a joint return, the phase-out begins at $110,000. For married taxpayers filing a separate return, it begins at $55,000. For all other taxpayers, the phase-out begins at $75,000. In addition, the Child Tax Credit is generally limited by the amount of the income tax you owe as well as any alternative minimum tax you owe.
If you have any question about how your little one(s) can help lower your tax liability, give me call.
Jéneen R. Perkins is a freelance accountant and consultant serving entrepreneurs, families and small businesses. She prides herself in being fluent in English instead of “Accountant-ese”.