Here’s good news for parent-taxpayers out there: you can decrease your tax bill by claiming a child tax credit.
Essentially, the child tax credit is a non-refundable tax relief that is directly applied against the income tax. This means the tax credit is not just deducted from your taxable income; rather, it is directly deducted from your actual taxes. The child tax credit reduces tax by approximately$1,000 for every qualifying child as mandated by the Working Families Tax Relief Act of 2004.
To be able to claim the child tax credit, you have to meet several criteria. First, you must earn a minimum amount of $3,000 to qualify for the tax credit. The income includes the taxable earned income and the nontaxable combat pay.
Second, your child must be eligible for the tax credit. A qualifying child satisfies the following requirements:
* Under the age of 17 at the end of the tax year
* A citizen, alien, or resident alien of the United States (A legally adopted child from another country who lives with the parent qualifies for the tax credit.)
* Related to you in any of these ways: biological child, legally adopted child, stepchild, foster child, grandchild, sibling, stepsibling, niece, or nephew
* Lives with you for more than half of the taxable year
* Dependent on more than half of your support
Now, if you are sure that you are eligible for a child tax credit, you can claim it by filing the Form 1040 or Form 1040-A. Claiming the child tax credit is not allowed on Form 1040-EZ since it is intended only for single taxpayers or those who have no dependents.
If you have three eligible children, you are qualified for a $3,000 deduction from your taxes. But if your tax is only $2,000, the credit will only apply for the tax owned, which is $2,000. Although you are not allowed to claim a tax credit whose amount is higher than your income tax, you are allowed to ask for a refund of the difference between your child tax credit and your income tax, provided that you meet certain requirements. You may qualify for an additional child tax credit, which is equal to the lost credit (In the above-mentioned example, it’s $1,000). To claim the additional child tax credit, you will need to fill out and file Form 8812.
Given the hard financial times, all a family needs is a breather from the burdens of tax. A child tax credit provides a welcome financial relief for parents who are struggling to make both ends meet.