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Most parents consider their children to be a blessing. During tax season, they reap the rewards of parenting by claiming the child tax credit.
The popular $1,000-per-child tax credit was made a permanent part of the tax code, thanks to the American Taxpayer Relief Act, also known as the “fiscal cliff” tax bill, that was enacted in January 2013.
More recently, the tax break was further enhanced. The component that allows for an additional refundable child tax credit — that’s money back from Uncle Sam even if you don’t owe any taxes — was permanently added to the tax code under the Protecting Americans from Tax Hikes, or PATH Act, of 2015.
Under PATH, families earning more than $3,000 now remain eligible for the added tax break. That threshold was slated to go to nearly $15,000 beginning in 2018, meaning many families would have stopped receiving the additional refundable credit.
These permanent child tax credit changes are great news for parents, who find the credit is an easy way to reduce their tax bills dollar for dollar and possibly get a refund.
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There are certain tests you — and your kids — must meet before the IRS will let you claim the tax credit.
The key requirement is that your youngster be 16 or younger at the end of the tax year.
But the child doesn’t have to necessarily be your child. A qualifying child in the IRS’ eyes also could be your sibling (either full or step) or a descendent of one of these relatives, such as a grandchild, niece or nephew.
As for your kids, they can be yours by birth, adoption or because your son or daughter was placed in your foster care by a court or authorized agency.
The IRS also looks at how much income you have in providing for most of the child’s care.
And the credit begins phasing out if you make $110,000 and are married, filing a joint return; earn $75,000 and file as head of household, single or qualifying widow or widower; or make $55,000 and are married filing separately.
If you take other credits, they could affect the final amount of child tax credit that you can claim. Instruction booklets for Form 1040 and Form 1040A contain the work sheets you’ll need to figure this credit. You also can find detailed examples in IRS Publication 972, Child Tax Credit.
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Getting extra credit
One drawback of the child tax credit is that it is nonrefundable. That means it can help you erase your tax bill, but it won’t get you a refund.
Take, for example, Jim and Joan, a couple with two kids who translate to a total child tax credit of $2,000. However, because Jim and Joan’s tax bill is $900, they lose some of the tax benefit of the credit. They can use it to wipe out what they owe the IRS, but the other $1,100 is effectively lost.
But Joan, Jim and other filers in similar situations might be able to get all or some of that nonrefundable portion back via the additional child tax credit.
The additional child tax credit, as already mentioned, is a refundable tax credit. Generally, the additional child tax credit is 15 percent of your taxable earned income that exceeds $3,000..
How to claim the credits
In addition to the financial benefit, the child tax credit is not difficult to claim. Just complete the work sheet in your 1040 or 1040A instruction booklet (or in your tax software); then enter the proper amount on your tax return.
Claiming the additional credit amount, like most child-related duties, requires extra time and work. There are different calculations depending on the number of children being claimed and the amount of the basic child tax credit that was not used. To figure your precise refundable tax credit, you’ll have to complete a work sheet and fill out Form 8812 and send it along with your individual tax return.
Or if you use tax software, that program will take you through the additional steps required to get the most tax credit from your children.
But don’t let the extra paper or computer work stop you. The calculations could really pay off.