11 Facts You Should Know About the 2011 Child Tax Credit

The IRS recently issued their Tax Tip 2012-29, which provides some key points about the Child Tax Credit.

Below is the text of the tip:

The Child Tax Credit is available to eligible taxpayers with qualifying children under age 17.  The IRS would like you to know these eleven facts about the Child Tax Credit.

  1. Amount With the Child Tax Credit, you may be able to reduce your federal income tax by up to $1,000 for each qualifying child under age 17.
  2. Qualification A qualifying child for this credit is someone who meets the qualifying criteria of seven tests: age, relationship, support, dependent, joint return, citizenship and residence.
  3. Age Test To qualify, a child must have been under age 17 – age 16 or younger – at the end of 2011.
  4. Relationship Test To claim a child for purposes of the Child Tax Credit, the child must be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals, which includes your grandchild, niece, or nephew.  An adopted child is always treated as your own child.  An adopted child includes a child lawfully placed with your for legal adoption.
  5. Support Test In order to claim a child for this credit, the child must not have provided more than half of his/her own support.
  6. Dependent Test You must claim the child as a dependent on your federal tax return.
  7. Joint Return Test The qualifying child cannot file a joint return for the year (or files it only as a claim for refund). Note: this means that a qualifying child can file a joint return if only filing it for a refund – for no other purpose, no other credits, etc..
  8. Citizenship Test To meet the citizenship test, the child must be a US citizen, US national or US resident alien.
  9. Residence Test The child must have lived with you for more than half of 2011.  There are some exceptions to the residence test, found in IRS Publication 972, Child Tax Credit.
  10. Limitations The credit is limited if your modified adjusted gross income is above a certain amount.  The amount at which this phase-out begins varies by filing status.  For married taxpayers filing a joint return, the phase-out begins at $110,000.  For married taxpayers filing a separate return, it begins at $55,000.  For all other taxpayers, the phase-out begins at $75,000.  In addition, the Child Tax Credit is generally limited by the amount of the income tax and any alternative minimum tax you owe.
  11. Additional Child Tax CreditIf the amount of your Child Tax Credit is greater than the amount of income tax you owe, you may be able to claim the Additional Child Tax Credit.The Additional Child Tax Credit is not available for any of the Child Tax Credit that was reduced by MAGI Limitation (#10) – this credit is only to replace any Child Tax Credit limited by the amount of tax you owe.  In other words, although the Child Tax Credit is not a refundable credit, any amount limited by the non-refundability can be replaced by the Additional Child Tax Credit.

    The Additional Child Tax Credit is applied for via Form 8812, and the maximum additional Child Tax Credit is as follows:

    Taxpayers with one or two children.
    The lesser of:
    * The disallowed portion of the regular child tax credit, or
    * 15% of the taxpayer’s earned income in excess of $3,000

    Taxpayers with three or more children. The lesser of:
    * The disallowed portion of the regular child tax credit, or
    * The larger of:
    * 15% of earned income in excess of $3,000.
    * FICA and Medicare tax paid minus earned income credit.

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About the author

Jim Blankenship, CFP®, EA

Jim Blankenship is the founder and principal of Blankenship Financial Planning, Ltd., a financial planning firm providing hourly, as-needed financial planning and advice. A financial services professional for over 25 years, Jim is a CFP professional and has earned the Enrolled Agent designation, a designation that qualifies him as enrolled to practice before the IRS. Jim is also a NAPFA-registered financial advisor, which designates him as a Fee-Only Financial Advisor.

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