Children Tax Credits and Relief
Giving birth to or adopting a son, daughter or even both, is a magical and life changing event. Like many other life events, bringing a baby into the family has a major impact on your tax situation. Parents or guardians of children are eligible to claim certain tax credits and deductions that could lower tax liability, provide relief and possibly result in a bigger refund.
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Dependent Exemptions
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A dependent exemption can be claimed for each qualifying child claimed as a dependent on a tax return. There are three general tests to determine whether a child is a qualifying dependent -- the Dependent Taxpayer, Joint Return and Citizen tests. To meet these tests the child cannot qualify as a dependent for another person, cannot file a joint return with another taxpayer and must be a U.S. citizen, resident or national or a resident of Canada or Mexico for at least part of the year.
Child Tax Credit
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The Child Tax Credit is a nonrefundable credit that can be claimed by taxpayers with qualifying children. The maximum amount of the credit is $1,000 per child; however, the credit may not reduce tax liability below zero. Individuals who do not qualify for the full amount of the child tax credit may be eligible to claim the Additional Child Tax Credit. For purposes of the Child Tax Credit, a qualifying child is younger than 17 years old, does not provide more than half his own support, lived with the taxpayer more than half the year, is a citizen or resident of the U.S. and is either related to or adopted by the taxpayer.
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Additional Child Tax Credit
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The Additional Child Tax Credit is a refundable credit that could allow some taxpayers to claim some or all of the Child Tax Credit that they were unable to take advantage of. To qualify for the credit, taxpayers must have an earned income of at least $8,500 and have a qualifying child. The rules for a qualifying child are the same as for the Child Tax Credit. Taxpayers wishing to claim the credit must attach Form 8812, Additional Child Tax Credit, to their tax returns.
Child and Dependent Care Credit
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The Child and Dependent Care Credit is a nonrefundable credit created to help offset the heavy financial burden of child care expenses. There are specific requirements that must be met when claiming this credit. The child must be younger than 13 years of age or disabled, the taxpayer must have earned income during the year, the expenses must be incurred while the taxpayer is at work or looking for work, married taxpayers must file a joint return and the taxpayer must be able to identify the individuals or organization that cared for the child.
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