Child Tax Credit

Loading the player...

DEFINITION of 'Child Tax Credit'

The Child Tax credit is a credit given to taxpayers for each dependent child who is under the age of 17 at the end of the tax year. The Child Tax credit is a nonrefundable credit that reduces the taxpayer's liability on a dollar-for-dollar basis. The Child Tax credit is intended to provide an extra measure of tax relief for taxpayers with qualifying dependents.

BREAKING DOWN 'Child Tax Credit'

Because the Child Tax credit is nonrefundable, it can only reduce the taxpayer's liability to zero. It should not be confused with dependency exemptions, which may be awarded for dependents who do not qualify for this credit. However, it is also possible to supplement it with the Additional Child Tax credit.

Requirements for Qualification

The Internal Revenue Service has established several factors that determine eligibility for the Child Tax credit. To qualify, the child must be a U.S. citizen, U.S. national or U.S. resident alien. He must also have lived with the person who is claiming the tax credit for more than half of the tax year and be claimed as a dependent on the taxpayer's return.

Although most taxpayers qualify for the Child Tax credit by claiming their children, other family members under the age of 17 may also qualify if the taxpayer provided more than half their financial support during the tax year. Siblings, grandchildren, and nieces and nephews may be eligible for the credit if they meet the age, citizenship and residency tests. Adopted and foster children also qualify for the credit.

Because the tax credit aims to help families in lower and middle income brackets, the credit is reduced or eliminated for earners making above certain income levels. For married couples who have modified adjusted incomes of more than 110,000 and file a joint return, the tax credit is phased out, as of 2016.

Additional Child Tax Credit

For some families, the Child Tax credit exceeds the amount of the tax they owe. In this case, they may qualify for the Additional Tax Credit. This is a refundable credit. To qualify, families must have at least three children or other qualifying dependents. The family must also have earned at least $3000 to receive the credit.

Who Can Claim the Child Tax Credit

Only one taxpayer can claim the Child Tax credit, even if the qualifying child divided time between more than one household during the tax year. If one parent had primary custody of the child, that parent usually receives the tax credit. In cases of joint custody, the parents may reach an agreement to each claim the credit in alternate years or arrive at another suitable compromise.

RELATED TERMS
  1. Additional Child Tax Credit

    A refundable credit that can be claimed by taxpayers who are ...
  2. IRS Publication 972: Child Tax ...

    A document published by the Internal Revenue Service (IRS) that ...
  3. Dependent Care Credit

    A nonrefundable tax credit offered to taxpayers who pay out-of-pocket ...
  4. Dependent

    An individual whom a taxpayer can claim for credits and/or exemptions. ...
  5. Adoption Credit

    A federal tax credit that may be claimed by federal taxpayers ...
  6. Child And Dependent Care Credit

    A non-refundable tax credit for unreimbursed childcare expenses ...
Related Articles
  1. Personal Finance

    Give Your Taxes Some Credit

    A few tax credits can greatly increase the amount of money you get back on your return.
  2. Personal Finance

    How To Claim A Dependent On Your Tax Return

    If you are a caregiver, get to know the rules for claiming a dependent before filing your taxes.
  3. Personal Finance

    5 Tax Credits You Shouldn't Miss

    If you're not taking advantage of these deductions, you could be missing out on tax savings.
  4. Personal Finance

    Taxing Times For Divorced Parents

    Find out how to deal with the tax issues that arise for divorced parents with dependent children.
  5. Personal Finance

    How to File Your Child's First Income Tax Return

    Use this quick parental guide to help your child learn the tax filing process and establish good habits.
  6. Personal Finance

    A "Kiddie Tax" Overview For Parents

    Understanding how children are taxed is very important when it comes to saving for their college education.
  7. Personal Finance

    How To Get The Most Money Back On Your Tax Return

    Many people pay more taxes than they have to simply because they don’t know better. Here are a few suggestions for getting the most out of your tax return.
  8. Personal Finance

    What's IRS Form 1040 For?

    Most U.S. taxpayers will be familiar with the 1040. By the end of filling it out, you'll know how much tax you owe, or what your refund is.
  9. Personal Finance

    Are You Eligible For the Earned Income Tax Credit?

    Earned income tax credits in the United States decrease taxes owed on a dollar-for-dollar basis.
  10. Personal Finance

    Tax Credits That Can Get You a Refund

    Here are a few of the credits that may result in a refund check, even if you owe no taxes this year.
RELATED FAQS
  1. What is the difference between a write-off and a deduction?

    Understand the differences between a tax write-off and a tax deduction. Learn how each one works to reduce income taxes and ... Read Answer >>
  2. How much does a dependent reduce your taxes?

    Learn the qualifications for claiming a dependent on your income taxes and the amount by which a dependent reduces your tax ... Read Answer >>
  3. How can I use a child tax credit?

    You may be able to reduce the amount of taxes you owe by up to $4,000, by claiming the child tax credit of up to $1,000 for ... Read Answer >>
  4. Can my child have an IRA/Roth IRA?

    Explore the possibilities for establishing a traditional or Roth IRA for a minor child, and learn the necessary requirements, ... Read Answer >>
  5. What's the difference between a tax rate and a tax bracket?

    These two terms are often incorrectly used interchangeably. Find out the difference between your tax rate and your tax bracket. ... Read Answer >>
  6. Will jointly filing taxes have the effect of joining a couple's credit?

    The only thing that "joins" the credit of a married couple is the ownership of joint accounts. In other words, if there is ... Read Answer >>
Hot Definitions
  1. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  2. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  3. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  4. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  5. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  6. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
Trading Center