Tax Insights

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The child tax credit may cut your taxes

For those of you with children, you hear rumors about the tax benefits of children. Unfortunately, some of the tax benefits seem to be less than the actual monetary cost of the child, but there is a way to potentially offset your tax bill with credits related to those adorable urchins. The Child Tax Credit may save you money at tax time if you have a child under age 17. (Do not confuse this with the Child and Dependent Care Credit – that is a separate and distinct credit.)

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Here are some key facts the IRS wants you to know about the credit.

  • Amount. The non-refundable Child Tax Credit may help cut your federal income tax by up to $2,000 for each qualifying child you claim on your tax return.
  • Qualifications. A child must pass seven tests to qualify for this credit:
  1. Age test. The child was under age 17 at the end of the tax year.
  2. Relationship test. The child is your son, daughter, stepchild, foster child, brother, sister, stepbrother, or stepsister. A child can also be a descendant of any of these persons. For example, your grandchild, niece or nephew will meet this test. Adopted children also qualify. An adopted child includes a child lawfully placed with you for legal adoption.
  3. Support test. The child did not provide more than half of his or her own support for the year.
  4. Dependent test. You claim the child as a dependent on your current federal income tax return.
  5. Joint return test. The child cannot file a joint return unless they are filing jointly only to claim a tax refund.
  6. Citizenship test. The child must be a U.S. citizen, U.S. national or U.S. resident alien.
  7. Residence test. In most cases the child must have lived with you for more than half of the year.
  • Limitations. Your filing status and income may reduce or eliminate the credit.
  • Additional Child Tax Credit. If you get less than the full Child Tax Credit, you may qualify for the refundable Additional Child Tax Credit. This means you could get a refund even if you owe no tax.
  • Schedule 8812. If you qualify to claim the Child Tax Credit, make sure to check whether you must file Schedule 8812, Child Tax Credit, with your return. If you qualify to claim the refundable Additional Child Tax Credit, you must complete and attach Schedule 8812.

For more on this topic, contact your tax adviser or visit www.irs.gov.

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