We’ve made it quick and convenient to understand the new tax credits
and what it means for you and your family!
First, what is the tax credit?
Child tax credits are designed to give an income boost to the parents or guardians of dependent children (dependent on your income). The child tax credit lets you reduce your Federal income tax bill by as much as $1,000 for each child under the age of 17 that qualifies and that you claim as a dependent. In 2017 the tax credit can be as much as $1,000 per child.
This isn't a deduction, rather, it's a tax credit that reduces your liability directly regarding the amount you owe the IRS. It is a dollar-for-dollar reduction until your liability equals zero, meaning you wouldn't necessarily get a refund if your tax credit puts you in the refund realm. You could claim the Additional Child Tax Credit and potentially get the amount that puts you in the positive if you are eligible.
Don't get Child Tax Credit(s) confused with The Child & Dependent Care Tax Credit (CDCTC). These are two separate but potentially valuable pieces of information when preparing and filing your 2017 tax returns! See more about the CDCTC in another one of our blog posts.
In 2009, the American Recovery and Reinvestment Act (ARRA) expanded eligibility requirements for additional child tax credit(s). That reduced the minimum earned income amount that is used in calculating the Child Tax Credit up to $3000, thus making more people eligible for a potentially larger amount they can claim.
But before filing for the additional child tax credit, you’ll first need to fill out the paperwork for the regular child tax credit.
Per the IRS:
If you answered “Yes” on line 9 or line 10 of the Child Tax Credit Worksheet in the Form 1040, Form 1040A, or Form 1040NR instructions (or on line 13 of the Child Tax Credit Worksheet), use Parts II – IV of Schedule 8812 to see if you can take the additional child tax credit.
If you have an additional child tax credit on line 13 of Schedule 8812, carry it to Form 1040, line 67; Form 1040A, line 43; or Form 1040NR, line 64.
Unfortunately you cannot use the easier versions for filing your taxes like the 1040NR-EZ or the 1040EZ because it isn't an option on these forms. Navigate to the IRS website for their child tax credit worksheet Publication 972 to get additional help & guidance on the credit and process. This can give you an idea of eligibility, amounts, and other information to get things started, but of course it's always a good idea to ask a professional if you aren't sure.
Unfortunately you can't use the simplified 1040EZ or 1040NR-EZ tax forms with the child tax credit.
To be eligible you must meet the 6 IRS requirements in addition to being the parent or guardian of the child / children.
Age: The child you claim must have been under 17 at the end of that tax year.
Relationship: The child must be your daughter, son, foster child or adopted child, or can also be a grandchild or a descendant of one of your siblings.
Support: The child must not have provided more than one-half of their own “support,” meaning the money they use generally as living expenses.
Dependency: The child must be claimed as your dependent on your federal income tax return.
Citizenship: The child must be a U.S. citizen, a U.S. national or a U.S. resident alien.
Residential: The child must have lived with you for more than one-half of that tax year other than a few exceptions (see the Child Tax Credit worksheet).
Of course, income can always be a factor with the IRS and any potential tax credits. Eligibility isn’t always black or white, there’s the child tax credit income phase-out. As your modified adjusted gross income (MAGI) increases, your child tax credit starts to phase out, with $50 less in child tax credits for every $1000 (or portion of $1000) that your MAGI exceeds a few criteria:
$75,000 if the filing as the head of household, single, or as a qualifying widow(er)
$110,000 if the filing status is married filing jointly
$55,000 if the filing status is married filing separately
This is all Fed-based, so keep your particular state in mind as well when filing. You may qualify for state level tax credits that match in part or all of your federal credit(s) and you may even qualify for refundable credits depending on which state you are filing in.
A handy resource we tell our clients to check out is on the Tax Credit for Workers and Families (TCWF) website. They've got a cool interactive map that tells you things like " Earned Income Tax Credit, Child Tax Credit and Child and Dependent Care Credit to complement the federal credits" eligibility.
It can sound like an overly complicated issue but remember: It's YOUR money! Claim it if you, and again, if you're unsure ask a local tax professional. We can always put you in touch with the people we know and trust with our own families and taxes and other legal questions. If you don't ask the question the answer is always no!
We hope this makes things a little less difficult for you but if you have questions reach out to us or a tax professional to get your concerns or queries squared away! Have questions about buying a house in 2018 and what that may mean for you down the road? Give us a call at (303) 757-5424 or send us an email and we'll do what we can for you as we always do.