When it comes to school, grades and sports, all parents hope that their children will be a credit to their name. At tax time however, this can literally be the case.
Thanks to the American Taxpayer Relief Act (also known as the fiscal cliff tax bill), the popular $1000 per child tax credit has now been made a permanent part of the tax code. For parents that’s great news and an easy way to get another reduction on their tax bill. Not only is it a financial extra but, when claiming, there are no records to keep or extra forms to file. Taxpayers simply need to enter the proper amount onto their 1040 or 1040 A form and that’s it.
If you’re eligible for the additional child tax credit however, there is a little bit more paperwork involved and you’ll have to fill out a worksheet in order to be able to figure out your exact credit amount.
Some of the basic requirements include;
- You and your kids must meet certain tests before the IRS will let you claim the benefit
- Your child must be 16 years of age or younger at the end of the previous tax year
- The child doesn’t have to be your blood relative. A step daughter, or descendent of another family member qualifies, as well as your niece or nephew
- Your kids can be yours by birth, adoption or can be a foster child
The credit begins to phase out if you make over $110,000 and file a joint return, file as a head of household, single person or qualifying widow or widower and make $75,000, or make $50,000 and file separately.
Taking other credits might affect the final amount that you can claim as your child tax credit, so be sure to get the instruction booklet for both the 1040 and 1040A forms as well as the worksheets that you’ll need to figure things out. IRS publication 972, the Child Tax Credit, also has detailed examples.
How to get extra credit
Keep in mind that the child tax credit is nonrefundable, which means that it can help you lower your tax bill but not to get a refund.
For example, a couple with two children will qualify for a tax credit of $2000 . If they have a tax bill of $900 they can wipe out that bill but the other $1100 will effectively be lost.
However, using the additional child tax credit that couple and others might be able to get some or all of their nonrefundable portion back. As we mentioned earlier, there will be some calculating necessary to figure out the exact amount of your tax credit and, generally, it’s about 15% of taxable earned income over $3000.
Parents with 3 children or more might qualify to get back more and could possibly qualify for an additional child tax credit up to the total amount of taxes that they paid into Social Security during the previous year, less any earned income that they might have received.
Like anything related to your children, getting these additional tax credits will require a bit of extra time and work. (Isn’t it always the same with kids?) Completing a worksheet as well as filling out Form 8812 is necessary, and the form must be sent along with your individual tax return. If you use a tax software program it should take you through the additional steps that you need to fill out in order to get the most tax credit available from your children.
One last thing to keep in mind is this; while it might be a little bit of extra work, filling out these extra forms is, in most cases, well worth it.