Child Tax Credit Explained

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Little Tax DeductionOne of the popular credits extended along with the Bush tax cuts and the tax brackets was the child tax credit. The child tax credit is a nonrefundable $1,000 tax credit for every child under the age of 17, subject to eligibility for both the filer (income eligibility) and the child (age isn’t the only factor in determining eligibility).

For families, this tax credit is very popular because a $1,000 tax credit for someone in the 25% tax bracket is like getting a $4,000 deduction. If you’re in the 15% tax bracket, it’s like getting a $6,666 deduction – for each child.

What is a Child?

The rules on eligible children is pretty straightforward and what you’d expect:

  • Child must be your dependent and must be a U.S. citizen or resident. The definition of a dependent is pretty broad and includes siblings, half siblings, and others but they must live with you for at least half the year and you must provide at least half of their support (they can’t be claimed by someone else on their return).
  • The dependent must be under the age of 17 at the end of the year (so 16 and younger).

Income Eligibility

If your child satisfies the requirements of being a child, the next step is to determine whether you can claim it based on income limitations. Much like other credits, this one is reduced based on your modified adjusted gross income at a rate of $50 per $1,000 you are over the threshold.

If you are married filing jointly, the phase-out starts at $110,000. If you are a single filer, the phase-out starts at $75,000. Finally, if you’re married filing separately, the phase-out starts at $55,000. The top end of the phaseout will depend on how many children you have.

Example: If a married couple filing jointly has three kids, they have $3,000 in child tax credit. They can claim the entire amount if their MAGI is under $110,000. If they earned, $130,000 then they must reduce their total claim by $1,000 to $2,000. If they earned $150,000 then they must reduce their total claim by $2,000 to $1,000. Unlike other phaseouts, which have hard caps, this one is merely a reduction of the credit if your income exceeds the lower threshold.

Credit Refundability

In most cases, this is a non-refundable tax credit. You can, however, qualify for the Additional Child Tax Credit if you satisfy some conditions and that credit is refundable.

Finally, this credit is in addition to the personal exemption you can claim for your dependents. That exemption reduces your taxable income (for 2010) by $3,650 per person, which can rival the size of the credit depending on your tax bracket.

(Photo: emerycophoto)

{ 19 comments, please add your thoughts now! }

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19 Responses to “Child Tax Credit Explained”

  1. Strebkr says:

    I had one son born Jan 10th (missed the credit that year, but got it the next) but another born on Dec 22nd this year (Just in time!!!)

    • Jim says:

      Cash that baby in!

    • mikestreb says:

      Hope you remembered to adjust your withholding at work. Also, don’t forget about the Dependent Care deduction (Form 2441) if you are paying a baby sitter. Depending on how much you make, it provides for a 20% – 35% credit for $3,000 PER CHILD. If you make more than $43,000 and both kids had at least $3k in Care Expenses, it is worth $1,200.

      But, you need the providers SSN or EIN. So Susie down the street that watches your kid for cheap probably doesn’t report her earnings to the IRS. Just be careful to not screw a friend or good neighbor.

  2. My wife and I were very excited to welcome our first tax credit in Oct. last year.

  3. lostAnnfound says:

    We lost one this year, turned 17 in November. Still have one more for another two years, but then that’s it. I’m going to miss that credit!

    • Jim says:

      What about the kid? 🙂

      • lostAnnfound says:

        Still have the kid. She’s here until Sept 2012 when she heads off to college. At that time I will definitely miss her, as well as the additional money that will go with her to help with college! 😉

    • mikestreb says:

      I always thought the ‘under 17 rule’ was silly. Why not when they are 17? They aren’t an adult yet…

  4. CK says:

    The marriage penalty for the phaseout is ridiculous.

    • NCTaxPro says:


      It might be, but it’s not unexpected – the thought behind it being that single parents have more difficulty than do married couples, more out-of-pocket expenses just to have a life, and therefore deserve a little extra help.

  5. zapeta says:

    We aren’t looking to add any of these deductions to the family in the near future. If only they had a cat tax credit, we’d be set…

  6. Shirley says:

    For the first time in 49 years, I don’t have a child to claim and that’s just fine. I don’t expect empty-nest syndrome to swallow me up any time soon either. 😉

  7. cubiclegeoff says:

    I’d rather have paid maternity and paternity leave, but this will have to do I guess.

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