The popular $1,000-per-child tax credit was made a permanent part of the tax code by the American Taxpayer Relief Act. Depending upon a parent’s income, the Child Tax Credit is an important and useful tax credit that may be worth as much as $1,000 per qualifying child under the age of seventeen (17). A qualifying child for this credit is someone who meets the criteria of six tests: age, relationship, support, dependent, citizenship, and residence.
Age Test – To qualify, a child must have been age 16 or younger at the end of the applicable tax year.
Relationship Test – For purposes of the Child Tax Credit, a child must either be a son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals, which includes a grandchild, niece or nephew. An adopted child is always treated as the taxpayer’s own child. An adopted child includes a child lawfully placed with the taxpayer.
Support Test – To qualify, the child must not have provided more than half of his or her own support during the tax year.
Dependent Test – The child must be claimed as a dependent on the taxpayer’s federal tax return. To claim a child as a dependent, he or she must: 1) be the taxpayer’s child (or adoptive or foster child), sibling, niece, nephew or grandchild; 2) be under age 19, or under age 24 and a fulltime student for at least five months of the year; or be permanently disabled, regardless of age; 3) have lived with the taxpayer for more than half the year; and 4) have provided no more than half of his or her own support for the year.
Citizenship Test – To meet the citizenship test, the child must be a U.S. citizen, U.S. national, or U.S. resident alien. For tax purposes, the term “U.S. national” refers to individuals who were born in American Samoa or in the Commonwealth of the Northern Mariana Islands.
Residence Test – The child must have lived with the taxpayer for more than half of the tax year. There are some exceptions to the residence test. A child who was born (or died) during the tax year is considered to have lived with the taxpayer for the entire year. Temporary absences by the taxpayer or child for special circumstances, such as school, vacation, or medical care are counted as time the child lived with the taxpayer.
The child tax credit is reduced if modified adjusted gross income (MAGI) is above a certain amount, with such amounts determined by tax-filing status. The threshold is $55,000 for married couples filing separately; $75,000 for single, head of household, and qualifying widow or widower filers; and $110,000 for married couples filing jointly. For each $1,000 of income above the threshold, the available child tax credit is reduced by $50. In addition, the Child Tax Credit is generally limited by the amount of income tax or any alternative minimum tax owed.
If the amount of a Child Tax Credit is greater than the amount of income tax owed, the Additional Child Tax Credit may be an option. This is important and useful because the Child Tax Credit is nonrefundable. If the credit exceeds tax liability, it only reduces a taxpayer’s bill to zero and any remaining unused credit is lost, no refund is received. However, some taxpayers may qualify to claim a refundable Additional Child Tax Credit for the unused balance.
If you have questions about claiming the Child Tax Credit on your 2015 tax return, call THE TAX EXPERTS at the Thorgood Law Firm www.thorgoodlaw.com. For a FREE consultation call 212-490-0704.
