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:
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.
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.
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.
On the federal tax return, the taxpayer must state that the child is a dependent.
To qualify for Child Tax Credit, the child has to be a United States citizen, national, or residential alien.
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.