Child Tax Credit (CTC)

1. Child Tax Credit (CTC)

2. What is Child Tax Credit? • The child tax credit is a nonrefundable credit that allows taxpayers to claim a tax credit of up to $1,000 per qualifying child, which reduces their tax liability.

3. Additional Child Tax Credit • Taxpayers who claim the nonrefundable child tax credit, but do not qualify for the full amount, may be able to also take the refundable additional child tax credit by completing Form 8812, Additional Child Tax Credit • May result in a refund even if the taxpayer doesn't owe any tax. • Taxpayers who claim the additional child tax credit must claim the child tax credit as well, even if they do not qualify for the full amount.

5. Qualifying Child • To be eligible to claim the child tax credit, the taxpayer must have at least one qualifying child • To qualify, the child must: • Meet the relationship criteria • Meet the age criteria • Not have provided over half of his or her own support • Have lived with the taxpayer for more than 6 months of the tax year (remember the special rules for divorced or separated parents or parents who live apart) • Be a U.S. citizen, U.S. national, or resident of the U.S.

6. Example Ed's son, Jeff, turned 17 on December 30, 2011. He is a citizen of the United States and has a valid SSN. According to the child tax credit rules, he is NOT a qualifying child for the child tax credit because he was not under the age of 17 at the end of 2011.

7. Amount of the Credit • The maximum amount taxpayers may claim for the nonrefundable child tax credit is $1,000 for each qualifying child. • The amount actually claimed on Form 1040 depends on the taxpayer's tax liability, Modified Adjusted Gross Income (MAGI), and filing status. • Married Filing Jointly - $110,000 • Single, Head of Household, or Qualifying Widow(er) - $75,000 • Married Filing Separately - $55,000

8. Calculating the Credit The actual amount of the child tax credit is figured using worksheets, but you must determine which worksheet to use for each taxpayer.

9. Additional Child Tax Credit • For certain individuals who do not qualify for the full amount of the (nonrefundable) child tax credit. • Refundable, so it may entitle taxpayers to a refund, even if they do not owe any tax. • Like the child tax credit, the additional child tax credit allows eligible taxpayers to claim up to $1,000 for each qualifying child after subtracting the allowable amount of child tax credit. For taxpayers with earned income over $3,000, the credit is based on the lesser of: • 15% of the taxpayer's taxable earned income that is more than $3,000 or • The amount of unused child tax credit (caused when tax liability is less than allowed credit)

10. Avoiding Common Errors • When considering the child tax credit, it is critical to ensure that the taxpayer has been interviewed thoroughly to correctly identify eligible children. Be sure to note any unusual situations on the intake and interview sheet. • If using tax software, the credit will be computed once the birth date and dependency information is entered on the Main Information Screen for dependents and the CTC block is checked.

11. QUESTION Denise files as Head of Household. She has a modified AGI of $44,000. She has three dependent qualifying children. Is she eligible for the full $1,000 child tax credit? Yes or No?

12. ANSWER Yes Denise meets the taxpayer requirements for receiving the full child tax credit.

13. QUESTION Jim and Pamela Greene are married and file a joint tax return. They claim their two children, ages 14 and 16, as dependents. Assuming their adjusted gross income is $101,000, what is the Greenes' allowable child tax credit?

14. What is the Greenes' allowable child tax credit? • $2,000 • $1,200 • $1,000 • $0

15. ANSWER • A. $2,000 • The Greenes' modified AGI of $101,000 is less than the threshold of $110,000. • Therefore, they are eligible for the maximum credit of $1,000 per dependent, for a total of $2,000.