Raising children can cost a lot of money these days, and many parents find themselves needing financial help from time to time. In an endeavor to provide financial assistance for American parents, the IRS has offered a tax credit to those who need to provide financial support for children. The Child Tax Credit was introduced in the year 2010, and it will be available until 2012. With this tax credit, parents can save a substantial amount of money, and they can provide for their children with greater ease.
The Child Tax Credit is offered to parents of children who are younger than 17 years old. If you are eligible for this tax credit, you can reduce your tax bill by $1,000 for every child that you are supporting. If you have three qualifying children, you can reduce the amount of tax you owe to the IRS by $3,000. However, the amount of credit will be reduced if you are earning an income that exceeds certain levels. The Child Tax Credit has no effect on the exemption deductions that you will be getting for dependent children. This means that you are allowed to claim both Child Tax Credit and exemption deductions in the same tax year.
Besides being younger than 17 years old, your child has to meet certain qualifying criteria to be eligible for the Child Tax Credit. Firstly, he or she has to be your son, daughter, stepchild, sibling, stepsibling, grandchild, nephew, niece, adopted child, or foster child as well as a United States citizen, national, or residential alien. Also, your child must not be responsible for providing more than half of the financial support he or she needs. It is also necessary that you state that he or she is a dependent when you are filing your tax return. Lastly, your child must have shared the same residence with you for a minimum of six months during the tax year.
Under normal circumstances, you will not be able to get a refund of your Child Tax Credit. This means that if your tax liability is lower than your credit, your tax liability will become zero, and any unused credit that you may have will be lost. However, you will be eligible for a refund if you are earning below a certain threshold. You can avail of the Additional Child Tax Credit, which will give you a refund even if your tax liability is lower than your credit.
Calculating Child Tax Credit can be a complicated task, especially if you have more than one qualifying children or you are applying for Additional Child Tax Credit. When the calculation becomes confusing, there is a greater tendency for you to make mistakes. One way to ensure that your Child Tax Credit will be correctly calculated is to use a Child Tax Credit calculator. Presently, there are many effective Child Tax Credit calculators from leading developers of tax preparation software on the Internet, and some of them can be used for free. These user-friendly calculators are specially designed to help you calculate your Child Tax Credit in the most accurate and fastest way possible, and they can make your tax preparation experience a lot less stressful.
Monday, September 26, 2011
Tax credits allow taxpayers to reduce the amount of tax which is owed. Some of these tax credits are the Disability Tax Credit, Energy Tax Credit, First-time Homebuyer Credit, Earned Income Credit, and Credit for the Elderly and the Disabled. The Child Tax Credit is one of the most common credits to be claimed by taxpayers in the United States. Let’s learn more about child tax credit for 2012.
In 1998, the Child Tax Credit amount for each child was only $400. In 2012, the Child Tax Credit can be worth a maximum of $1,000 for each qualifying child below 17 years old. Depending on your income level, the Child Tax Credit may be used to lower your federal income tax by a specific amount. To qualify for Child Tax Credit, the child must meet the qualifying requirements as outlined by six tests:
Age Test
To be eligible for the Child Tax Credit, the child must be below 17 years old when the taxable year ends. It means that the child has to be 16 years old or younger.
Relationship Test
The relationship of the child and the taxpayer must be established. To qualify for Child Tax Credit, the child must be the taxpayer’s daughter, son, foster child, stepchild, sister, brother, stepsister, stepbrother or a child of any of the mentioned persons. The taxpayer’s niece, nephew or grandchild will qualify. In the United States, an adopted child will always be considered to be a person’s own child. To qualify, the adopted child must be legally adopted by the taxpayer according to the laws of the state.
Support Test
To claim a child for the Child Tax Credit, the taxpayer must show that the child does not offer more than 50 percent of their own support.
Dependent Test
On the federal tax return, the taxpayer must state that the child is a dependent.
Citizenship Test
To qualify for Child Tax Credit, the child has to be a United States citizen, national, or residential alien.
Residence Test
The taxpayer must have lived with the child for a minimum of half of the taxable year.
If the adjusted gross income of the taxpayer is higher than a specific amount, the Child Tax Credit can be limited. Depending on the filing status of the taxpayer, the beginning phase-out amount varies. The phase-out amount for married taxpayers who are filing a joint return starts at $110,000. For taxpayers who are married and filing returns separately, the phase-out amount starts at $55,000. The phase-out amount for all other taxpayers starts at $75,000. In cases where the taxable income is higher than the phase-out amount, the total for the Child Tax Credit is reduced by 5 cents for every $1 above the threshold. In this sense, the Child Tax Credit is not available for families with joint income of $130,000 or more. Other limitations of the Child Tax Credit include amount of income tax and any alternative minimum tax owed by the taxpayer.
If the amount of income tax owed by the taxpayer is lower than the Child Tax Credit amount, the taxpayer may be able to receive the Additional Child Tax Credit.
In 1998, the Child Tax Credit amount for each child was only $400. In 2012, the Child Tax Credit can be worth a maximum of $1,000 for each qualifying child below 17 years old. Depending on your income level, the Child Tax Credit may be used to lower your federal income tax by a specific amount. To qualify for Child Tax Credit, the child must meet the qualifying requirements as outlined by six tests:
Age Test
To be eligible for the Child Tax Credit, the child must be below 17 years old when the taxable year ends. It means that the child has to be 16 years old or younger.
Relationship Test
The relationship of the child and the taxpayer must be established. To qualify for Child Tax Credit, the child must be the taxpayer’s daughter, son, foster child, stepchild, sister, brother, stepsister, stepbrother or a child of any of the mentioned persons. The taxpayer’s niece, nephew or grandchild will qualify. In the United States, an adopted child will always be considered to be a person’s own child. To qualify, the adopted child must be legally adopted by the taxpayer according to the laws of the state.
Support Test
To claim a child for the Child Tax Credit, the taxpayer must show that the child does not offer more than 50 percent of their own support.
Dependent Test
On the federal tax return, the taxpayer must state that the child is a dependent.
Citizenship Test
To qualify for Child Tax Credit, the child has to be a United States citizen, national, or residential alien.
Residence Test
The taxpayer must have lived with the child for a minimum of half of the taxable year.
If the adjusted gross income of the taxpayer is higher than a specific amount, the Child Tax Credit can be limited. Depending on the filing status of the taxpayer, the beginning phase-out amount varies. The phase-out amount for married taxpayers who are filing a joint return starts at $110,000. For taxpayers who are married and filing returns separately, the phase-out amount starts at $55,000. The phase-out amount for all other taxpayers starts at $75,000. In cases where the taxable income is higher than the phase-out amount, the total for the Child Tax Credit is reduced by 5 cents for every $1 above the threshold. In this sense, the Child Tax Credit is not available for families with joint income of $130,000 or more. Other limitations of the Child Tax Credit include amount of income tax and any alternative minimum tax owed by the taxpayer.
If the amount of income tax owed by the taxpayer is lower than the Child Tax Credit amount, the taxpayer may be able to receive the Additional Child Tax Credit.
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