What Is the Maximum Tax Credit for Children?
Parents spend a large portion of their income every year taking care of their children. Without child tax credits, parents would face the financial burden of raising children without a monetary break from the government. If you use the maximum tax credit and it's more than your tax liability for the year, you don't receive money from the government.
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Maximum Tax Credit
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The maximum tax credit that parents receive, as of the 2010 tax year, depends on the number of children in the household. For parents with one qualifying child, the credit is $3,050. Parents with two qualifying children may take up to $5,036 in credits. Parents with three or more children who qualify for the tax credit may receive up to $5,666 in credits.
Uses
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The purpose of tax credits for children is to offset the expenses parents incur throughout the year for care. Food, clothing, housing, tuition, medical bills, transportation and day care are all expenses parents face, often totaling thousands of dollars during the tax year. If a parent has three children and lowers her tax liability by the maximum of $5,666, the money saved offsets these expenses.
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Qualifying Child
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In 2005, the Internal Revenue Service set four criteria that a child must meet to be a "qualifying child" for tax credits. To qualify, the child must be the child of parents either by blood, adoption or through marriage, such as a stepchild; foster children also qualify. Additionally, a child must live in the parent's household for at least half of the fiscal year, except in cases where the parents are divorced. A child qualifies if she's less than 19 years old or if she's enrolled full-time at a college, up to the age of 24 years. A qualified child can't provide more than half of her financial support for the tax year.
Working Parents
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If both parents in the household work, or a single parent with a qualifying child works, the IRS allows for a "dependent-care account" that funds child expenses tax free. The parent sets up an account with her workplace that she funds with a small percentage of her income every month. This account is only meant for child care expenses. If the account contains a balance at the end of the fiscal year, the balance is forfeited to the IRS.
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References
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