Something you don’t realize until you have children of your own is exactly how expensive they are. The cost of providing food, clothing, baby products, healthcare, education, and other necessities can quickly mount. Thankfully, the IRS and the United States government understand the cost of being a parent and offer the Child Tax Credit to qualifying individuals.
What is the Child Tax Credit?
The Child Tax Credit is designed to bring relief to families with children. It is worth up to $1,000 per child under the legal age of 17. The child must be claimed as a dependent and additional criteria must be met to qualify.
Child tax credits are designed to help parents reduce their child’s federal income tax liability to zero. When this happens, the child tax credit may be refundable to the benefit of the taxpayer. As the income level grows, the amount a taxpayer qualifies for is gradually reduced.
The 7 Child Tax Credit Requirements
To qualify for child tax credit, you must meet a list of pre-established requirements. Here are the official necessities, according to the IRS:
- The age test: Your child must be under the age of 17 at the end of the 2014 calendar year.
- The relationship test. The child must be your legal daughter or son, or your brother or sister. Your stepchild, foster child, stepbrother, or stepsister will also qualify for the relationship test. It is also possible for the child to be a descendant of any of these people. This means grandchildren, nieces, and nephews can sometimes meet this test. According to the IRS, adopted children and children placed for adoption also qualify.
- The support test. The third test refers to the level of financial support you provide for your child. Passing the support test requires you provided at least half of their support throughout 2014. A child who provided the majority of their own financial resources does not qualify for a child tax credit.
- The dependent test. Meeting the fourth requirement means you must claim the child as a dependent on your 2014 income tax return.
- The joint return test. A married child is not permitted to file a joint return with his/her spouse if the sole intention is to claim a tax refund.
- The citizenship test. The child is required to be a U.S. citizen, U.S. resident alien, or U.S. national.
- Residence test. In most situations, you must prove the child lived with you for more than half of 2014.
Additional Requirements and Information
While those seven requirements are clear, there are some additional limitations that sometimes come into effect. Depending on your filing status or income level, you may be disqualified from receiving child tax credits. Only those with a modified adjusted gross income less than $110,000 (for those who are married filing jointly), $55,000 (for those who are married and filing separately), or $75,000 (for those who are single and the head of household) can claim the credit.
It’s also worth noting the Child Tax Credit is nonrefundable. In the situation that the tax credit exceeds the tax liability, your tax bill is reduced to zero and the remaining credit is forfeited. However, in some situations, you may be eligible to claim an extra credit. Known as an Additional Child Tax Credit, this allows you to use the unused balance towards your income tax return. Finding out if you qualify is as easy as completing the IRS Form 8812.
The Vote to Boost Some Child Tax Credits
This past July, the House voted to boost child tax credits to include higher income families by tying the figure to inflation. It also targets illegal immigration by prohibiting people without Social Security numbers from receiving tax credits. As you may guess, the dispute divides Democrats and Republicans.
Democrats typically follow the viewpoint of Rep. Sander Levin of Michigan, who said, “This bill leads to harm for millions of low and middle income families and their children.” The Republican opinion is largely aligned with Rep. Dave Camp of Michigan, who said, “It is time we make some simple improvements to the child tax credit, so it keeps up with the cost of raising children.”
In 2012, 37 million taxpayers claimed the Child Tax Credit. These taxpayers were able to reduce their tax bills by a collective $57 billion. While there is much political debate surrounding the finer details of the credit, nearly everyone agrees some form of tax relief is good. For assistance navigating the Child Tax Credit, discuss your options with a qualified tax professional.