Child Tax Credit

The Child Tax Credit is a nonrefundable credit offered by the IRS for families with children who meet five IRS qualifying tests. Depending on income levels, the amount of the Child Tax Credit can be up to $1,000 per child. The Child Tax Credit represents a dollar-for-dollar reduction in a taxpayer’s income tax liability. The Child Tax Credit is typically capped at the amount of income tax owed (including AMT if applicable). However, if a taxpayer is unable to claim the entire Child Tax Credit due to these limitations, such taxpayer may be eligible to file Form 8812 to claim the Additional Child Tax Credit (i.e. supplemental tax credit offered by the IRS).

The Child Tax Credit qualifying tests are:

1. Age Test: The child must be under the age of 17 at the end of the tax year.
2. Relationship Test: to qualify for the Child Tax Credit, the child in question must be the taxpayer’s son, daughter, step-son, step-daughter, legally adopted child or a child lawfully placed for legal adoption, foster child, brother, sister, stepbrother, stepsister. Further, any descendants from an eligible child may also qualify for the Child Tax Credit (e.g. taxpayer’s grandchild, niece or nephew).
3. Support Test: The child must not have paid for more than half of their own support during the tax year.
4. Residency Test: generally, the child must have lived with the taxpayer for more than half of the tax year.
5. Dependent Test – child must be claimed as a dependent on the taxpayer’s federal tax return.

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