For Individuals - Tax Tips

Will you qualify for the child tax credit?

Although the child tax credit is simple in concept, it's actually quite complicated in application. On their tax returns, taxpayers are entitled to a tax credit of $500 for each dependent child under age 17. That seems simple enough, but a look at the details reveals how complex the child tax credit really is.

Credit phases out
The credit begins phasing out at the rate of $50 for each $1,000 of modified adjusted gross income in excess of $110,000 for joint tax filers ($75,000 for single taxpayers). The length of the phase-out range varies depending on the number of children a taxpayer has who qualify for the credit.

Nonrefundable - with exceptions
The child tax credit is generally nonrefundable, which means a taxpayer�s credit cannot exceed his or her tax liability for the year. Exceptions exist for taxpayers entitled to a supplemental child credit or the additional credit. The supplemental credit applies to taxpayers eligible for the earned income credit, while the additional (or refundable) credit is available to those taxpayers with three or more qualifying children.

What about divorce?
In the case of divorced or separated couples, the spouse who is entitled to the dependency exemption is entitled to take the child tax credit.

Withholding adjustments
To allow for the impact of the new credit on your taxes, the IRS allows qualifying parents to reduce their withholding throughout the year. This is done by filing a new W-4 Form with your employer.