Taxes: What Is The Child Tax Credit?

The Child Tax Credit can provide tax relief of up to $1,000 for each qualifying child. Find out if you qualify and how to claim this credit on your taxes.

Last year there was a great deal of talk about the Child Tax Credit, a measure passed by the government designed to bring tax relief to parents. This credit is separate from the Child and Dependent Care Credit, and provides tax credits of up to $1,000 per qualifying child for eligible taxpayers. But what is the Child Tax Credit? And do you qualify? The good news is that for most Americans with children, the answer is yes.

In order for a child to qualify for the Child Tax Credit, he or she must fulfill several requirements. First, the child must be claimed as a dependent on your federal return, and be less than seventeen years old at the end of 2004. If your daughter turned seventeen on December 23, 2004, for example, she wouldn't qualify.

Second, the child must either be your son, daughter, adopted child, foster child, stepchild, or a descendant of any of them. A grandchild that you care for and claim as a dependent would qualify, in this case. The child can also be a sibling - a brother, sister, stepsister or stepbrother - or descendant of any of these, so long as they fulfill the other requirements and you care for them as your own child. For example, if your stepbrother's daughter lives with you, she is less than seventeen years old, and you claim her as a dependent on your tax return, she is a qualifying child for the credit. Finally, the child must be a U.S. citizen or resident alien.



Although the maximum credit for the child tax is $1,000, not everybody qualifies for this amount. In certain cases, your credit will be reduced; for example, if the total tax you owe is less than the amount of the credit, or you owe no tax. In general, you cannot use the child tax credit to get a refund, unless you qualify for the Additional Child Tax Credit. The credit will also be reduced or denied if your modified AGI is above certain limits. For most people, your modified AGI is the same as your AGI (adjusted gross income), unless you had foreign income, income from Puerto Rico, or are a resident of American Samoa. If this applies to you, your modified AGI will be different than your AGI. For the 2004 tax year, the limits on the modified AGI are $110,000 for a married couple filing jointly, $75,000 if you are single, and $55,000 if you are married filing separately.

In some cases, filers may qualify for the Additional Child Tax Credit. This may be the case if your maximum Child Tax Credit is reduced due to owing less tax than the credit or owing no tax. To see if you qualify for the Additional Tax Credit, you will need to fill out IRS Form 8812. The advantage of this credit is that even if the credit exceeds the taxes you owe, you may receive a refund.

In order to claim the credit, you must file either Form 1040 or Form 1040 with your federal income tax. You can not use Form 1040EZ. For most people, claiming the credit will be as simple as using the Child Tax Credit worksheet included in their Form 1040 workbook. However, certain people may have to use the worksheet in IRS Publication 972. These people include those who are claiming certain foreign incomes, those whose AGI's are above the stated guidelines, and those claiming certain other credits. The Child Tax Credit worksheet included in Form 1040 will tell you whether or not you must use Publication 972.

The Child Tax Credit, though helpful to many people, can be confusing. If you have any questions about whether or not you qualify, speak with a tax professional. For more information about the Child Tax Credit, see IRS Publication 972, IRS Publication 17, or talk with an accountant.

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