Why We Do Not Receive the Full Child Tax Credit
Deductions for child-related expenses such as daycare, give parents a reduction in their taxable income. The child tax credit reduces parents' total tax liability. Child tax credits begin to phase out at certain income levels. The income phase-out levels for this tax credit depend on tax filing status.
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Qualifying Child Requirements
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For parents to take this credit, their child must be 16 or younger in the tax year they are claiming the credit. The child must also be a U.S. citizen, national or resident. The parent claiming the credit must have provided at least half of the child's financial support throughout the tax year. If the child was responsible for more than half of his financial support throughout the year, the parent cannot claim the child tax credit. The child must also have lived with the parent claiming the tax credit for at least six months of the year. Parents must also claim the child as a dependent on their federal tax returns.
Income Phase Outs
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The amount of the child tax credit decreases as the parent's adjust gross income or AGI increases. The AGI is the total amount of the parent's income after deductions. The phase-out of the credit for those who filed their taxes as married filing jointly in 2010 was $110,000. For married filing separately, the phase out was $55,000. For single filers it was $75,000. For every $1,000 the parents' AGI was over their respective income phase-out limits, the child tax credit decreased by approximately $50. Income amounts over the phase-out amount that were less than $1,000 were rounded up to the nearest thousand. For example, if the AGI of a married filing jointly couple was $110,500, then the parents had to round that amount up to $111,000 for child tax credit purposes.
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Additional Child Tax Credit
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Parents who do not receive their full child tax credit amount because their tax liability is too low, may be eligible to take an additional child tax credit. To determine if they qualify for this additional credit, parents must complete IRS Form 8812. To calculate the additional child tax credit amount, the parents must first complete a child tax credit worksheet and have their Form 1040 completed. They can then follow the instructions on IRS Form 8812 to calculate their additional child tax credit amount.
Considerations
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Parents cannot claim the child tax credit if they use IRS Form 1040EZ to complete their tax returns. To claim the credit, parents must use IRS Forms 1040, 1040A or 1040NR. Parents cannot claim this credit if the dependent is a not a US citizen, national or resident, even if the parent provided 50 percent or more of the child's financial care during the year. The parent who claims the child tax credit in the case of a divorce depends upon the agreement the parents made in the divorce decree regarding taxes. Generally, the custodial parent is the one eligible to claim the credit. Both parents cannot claim the same child for the purpose of the child tax credit.
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References
- Photo Credit tax time image by Tom Oliveira from Fotolia.com
