Child Tax Credit

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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.