Yesterday we talked about how the energy efficient home improvement tax credit was extended into 2011, albeit at a lower reduced maximum of a $500 max credit per homeowner, at at a reduced amount for many eligible products. While the credit is still around, the effect it will have at this reduced amount is anyone’s best guess.
Today I want to touch on another tax credit that was extended, this one for two more years, through 2012. That is the $1000 child tax credit.
$1000 Child Tax Credit Extended
Within the past couple of weeks Congress and President Obama passed into law an extension of the Bush era tax cuts, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 or H.R.4853. There were several popular tax breaks extended in the bill including a slimmed down home improvement tax credit, an extension of the current tax rates (instead of a huge tax hike), and a payroll tax holiday, cutting Social Security tax withholding from 6.2% to 4.2% for one year.
One that a lot of families are happy about is the extension of the valuable child tax credit for dependent children that many parents have taken advantage of for the past few years. The Child Tax Credit (CTC) was at a level of $500 per child, until legislation raised it to the current $1000 per child level.
Under H.R.4853 the Child Tax Credit (CTC) of $1000 per child has been extended for the 2011 and 2012 tax years, and is available to parents or legal guardians of children who are 16 years old or younger at the end of the year. That means my wife and I will be able to enjoy a new $1000 tax credit for 2010 & 2011 now that we’ve had our first child! Daddy’s little tax credit! :)
Child Tax Credit Eligibility And Phaseout
Eligibility to receive the full Child Tax Credit is subject to income limits and phaseouts.
- Income limit of $110,000 for married couples
- Income limit of $75,000 for single parents.
After these income levels the credit is reduced by 5% of adjusted gross income.
The Child Tax Credit is a credit, as opposed to a tax deduction. A tax deduction reduces your taxable income, while a credit reduces the amount of tax owed.
IRS Facts About The Child Tax Credit
The IRS recently posted ten facts on their site about claiming the Child Tax Credit. I thought I’d share them here.
1. Amount – With the Child Tax Credit, you may be able to reduce your federal income tax by up to $1,000 for each qualifying child under the age of 17.
2. Qualification – A qualifying child for this credit is someone who meets the qualifying criteria of six tests: age, relationship, support, dependent, citizenship, and residence.
3. Age Test – To qualify, a child must have been under age 17 – age 16 or younger – at the end of 2010.
4. Relationship Test – To claim a child for purposes of the Child Tax Credit, they must either be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals, which includes your grandchild, niece or nephew. An adopted child is always treated as your own child. An adopted child includes a child lawfully placed with you for legal adoption.
5. Support Test – In order to claim a child for this credit, the child must not have provided more than half of their own support.
6. Dependent Test – You must claim the child as a dependent on your federal tax return.
7. Citizenship Test – To meet the citizenship test, the child must be a U.S. citizen, U.S. national, or U.S. resident alien.
8. Residence Test – The child must have lived with you for more than half of 2009. There are some exceptions to the residence test, which can be found in IRS Publication 972, Child Tax Credit.
9. Limitations – The credit is limited if your modified adjusted gross income is above a certain amount. The amount at which this phase-out begins varies depending on your filing status. For married taxpayers filing a joint return, the phase-out begins at $110,000. For married taxpayers filing a separate return, it begins at $55,000. For all other taxpayers, the phase-out begins at $75,000. In addition, the Child Tax Credit is generally limited by the amount of the income tax you owe as well as any alternative minimum tax you owe.
10. Additional Child tax Credit – If the amount of your Child Tax Credit is greater than the amount of income tax you owe, you may be able to claim the Additional Child Tax Credit.
- Publication 972 from the IRS, Child Tax Credit (PDF 128K)
Are you claiming the Child Tax Credit this year? How much does it stand to save you in taxes since it will remain at $1000 instead of reverting back to the $500 level?
“…and is available to parents or legal guardians of 17 year old or younger dependent children.” I am sure it was an oversite but, I believe that statement is incorrect as seen later in the post under “IRS Facts About the Child Tax Credit.” the credit is only available if the child was under age 17 at the end of the year.
Peter Anderson says
You’re correct. I’ve updated it to reflect the correct age requirement – “Was under age 17 at the end of 2010”.
“The Child Tax Credit is a credit, as opposed to a tax deduction. Because of that taxpayers receive it as a refund if no taxes are owed.”
This is not true. That is not the difference between a credit and a deduction. A deduction is a subtraction from your taxable income. A credit is a subtraction from your taxes owed. There are two types of taxes, refundable and non-refundable. The Child Tax Credit is non-refundable; it will only subtract up to the amount of tax you actually owe and you will NOT receive a refund due to it.
However, there is the Additional Child Tax Credit which has different requirements than the regular Child Tax Credit. That one is refundable, but is much more difficult to qualify for (more than just having a child).
EDIT: “There are two types of taxes, refundable and non-refundable.” should be “There are two types of credit, refundable and non-refundable.”
Peter Anderson says
Sloppy writing this morning I suppose. :) Updated.
Thanks for the quick fix!
As far as the extension of the $1000 credit, I’m glad congress will continue to give the populace more of their money back. Now if only they’d trim their expenditures along with it… wishful thinking, I know :).
Peter Anderson says
I agree. Time to cut spending as well. (good luck, to politicians more money and spending means more power. The day they vote to get rid of their own power is going to be a long time coming.)
What was the reasoning for increasing the tax credit from $500 to $1000?
Great info! Here are some information about the child tax credit I wrote about as well – http://www.bethbcpa.com/got-kids-tax-tips-for-taxpayers-with-tots-teens/
$1,000.00 is nothing. My mom & dad both told me that when we were young kids, they used to get a $3,500.00 tax credit for each child. They had four kids. This was back in the 70’s and 80’s too.
Jonathan Boyd says
Please clarify the dates. Your use of dates is somewhat vague to me. Is this credit extended through the 2011 taxes, or will it continue through the 2012 taxes?
You say ‘…for two more years, through 2012.’ It was my understanding that this credit was set to expire last year, although I may be wrong, but does this two year extension make it good for both the 2011 taxes AND 2012 taxes?
Jonathan Boyd says
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 extended this $1,000 cap through the end of 2012.