Child Tax Credit
Taxpayers who have a qualified child may qualify for the Child Tax Credit. The maximum credit amount is $1,000 through 2012 and then will drop to $500 beginning in 2013 unless Congress takes further action.Taxpayers with “earned” (not investment) income whose child credit exceeds their regular and alternative minimum taxes are eligible for a refundable credit. This credit is 15% of the taxpayer’s earned income in excess of a threshold amount, which is $3,000 for 2009 through 2012.
A qualifying child for purposes of this credit is a child who:
(1) Is the taxpayer’s son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them (for example, a grandchild);
(2) Was under age 17 at the end of the tax year;
(3) Did not provide over half of his or her own support for the tax year;
(4) Lived with the taxpayer for more than half of the tax year; and
(5) Was a U.S. citizen, a U.S. national, or a resident of the United States.
For 2009 and later years, the qualifying child must also be the taxpayer’s dependent.
As with most tax benefits, the child tax credit begins to phases out when a taxpayer’s income reaches certain specified threshold amounts. The threshold amounts are $110,000 for married taxpayers, $55,000 for married taxpayers filing separately and $75,000 for all others. The phase-out amount is $50 for each $1,000 (or fraction) of income in excess for the phase-out threshold.
In addition to being limited due to the AGI phase out, the child tax credit is also limited for most taxpayers by the taxpayer’s total tax liability (both regular and AMT). However, when the credit is limited by the amount of tax liability, a portion of the credit may be refundable for certain taxpayers (see below). The child tax credit can be used to offset AMT only through 2011.
Taxpayers who are unable to claim the full amount of the child tax credit because their income tax liability is less than the credit amount may qualify to take a portion of the tax credit as a refundable credit. This refundable “additional” credit is limited to lower-income taxpayers and involves a rather complicated computation to determine the amount that is refundable.
Special Benefit - Military - Excluded combat zone pay of military taxpayers is treated as earned income for purposes of the computation of the refundable portion of the credit.
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