Claiming the Child Tax Credit

If you’re like me, you like to get every tax credit that you can. It’s hard to track all the tax credits you have coming, though, and one especially tricky one is the child tax credit. Here are the rules for 2014.

You can claim a credit of $1,000 per child if you make less than $110,000 per year, one of President George W. Bush’s many tax cuts early in his first term. When the child tax credit came into existence in 1998, the per-child amount was $400; over the years, it increased to the current $1,000.

Families earning less than $130,000 a year and with one or more dependent children younger than 17 can take some or all of this credit on their tax return filed with the Internal Revenue Service. The credit is in addition to tax breaks for child and dependent care expenses and the earned income credit.

You must examine several further conditions, of course, to see if you qualify.

Only families with modified adjusted gross income (MAGI) of less than $110,000 annually qualify for the full credit. Families making $110,000 to $130,000 receive a reduced credit (specifically, $50 per $1,000 made over $110,000).

Unmarried individuals’ MAGI capped at $75,000 to qualify. Married taxpayers who file separate returns must make no more than $55,000 per year individually.

Qualifying children must be U.S. citizens or residents whom the taxpayer can claim as dependents. Under current rules, the children must also be younger than 17 by the end of the tax year and not provide more than half their own support during that year.

The children can be your blood relations, grand- or stepchildren or adopted. Foster children also fall under this category as long as they lived in your home for more than half of the tax year (again, under the most current rules). The child’s filing a joint return for the same tax year disqualifies the child unless the filing was simply to claim a refund.

To claim the credit, you must file IRS Form 1040, 1040A or 1040NR (for non-U.S. residents). You cannot claim the child tax credit on IRS forms 1040EZ or 1040NR-EZ. You must also provide the name and identification number (usually a Social Security number) on your tax return for each qualifying child.

Generally, this break functions as a credit against taxes you owe. Sometimes, however, it translates into an actual tax refund or tax rebate.

For a few American families, the credit exceeds tax liability and they can receive the unused part of the credit as a refund. Your credit portion available for refund depends on your number of children, your total earned income and sometimes the taxes you paid over the year to Social Security and Medicare. See IRS Form 8812 for instructions.

Conditions for this useful tax break may change at any time. Check IRS Publication 972 for the latest information and make every effort to get what tax relief you can.

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Jeff Rose, CFP, is the founder of Alliance Wealth Management in Carbondale, Ill., and also is the founder of the website Good Financial Cents and Life Insurance by Jeff.

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