Child Tax Credit - New Changes from the Recovery Act

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Child Tax Credit - New Changes from the Recovery Act

Taxpayers who have dependent children that are younger than 17 by the end of the tax year may be eligible for a $1,000 Child Tax Credit for each child.

Claiming the Credit - To claim the Child Tax Credit there are requirements for you, the qualifying child and certain limits on the credit. You must follow the same rules as claiming a dependency exemption with the exception that your child must be under the age of 17 before December 31, 2009. In order for the child to qualify, the child must not have provided their own support during the year and child must have lived with you for more than 1/2 of the year. Also, the child must be the taxpayer's child,adopted child, stepchild, grandchild, eligible foster child,sister, brother,stepbrother, stepsister, etc. Further, a qualifying child must be a U.S. citizen or resident of the United States.

Income Limits - The Child Tax Credit that you can claim for a Child Tax Credit is dependent upon the your tax liability, filing status and your modified adjusted gross income. The child tax credit starts to phase out when your modified adjusted gross income is equal to $110,000 for joint filers or $75,000 for single taxpayers or $55,000 for married taxpayers who file separately. If the amount of the credit is greater than your tax liability, then the you may be eligible for a refundable credit. This extra credit is known as the "Additional" Child Tax Credit and is discussed below.

2009 Changes - Previously to be eligible for the refundable portion of the Child Tax Credit you were required to have earned income in excess of $12,550. The Recovery Act now reduced the earned income minimum from $12,550 to $3,000 and thereby, increased the eligibility for claiming the credit.

Refund Amounts - The amount of the Child Tax Credit is not permitted to exceed your tax liability. For example, when the tax liability is zero, then the Child Tax Credit is zero because there is no liability to reduce. Fortunately if you are not able to take the full amount of the Child Tax Credit then you may be entitled to claim an "Additional" Child Tax Credit.

What Happens If I am Not Eligible for the Child Tax Credit - In you do not qualify for the Child Tax Credit, then you may qualify for the "Additional" Child tax Credit. The amount of the "Additional" Child Tax Credit is up to $1,000 for each qualifying child. What is good about this provision is that the "Additional" Child Tax Credit may be able to lower your tax liability to below zero and you may be able to obtain a refund for this excess. To qualify for this " Additional" Child tax Credit, you must have a tax liability that is less than the allowable child tax credit, meet the requirements of the regular Child Tax Credit and earn more than $11,750 during 2009. If this event occurs, you may be entitled to receive a refund for the "Additional" Child Tax Credit. In order to compute this Additional Child Tax Credit there are more limitations and requirements that are not within the scope of this article and you should read IRS Publication 972.

Summary - In summary, the Child Tax Credit is a nonrefundable credit that allows taxpayers that qualify to reduce their tax liability. In the event as a taxpayer is not able to use the entire amount of the $1,000 credit then they may be eligible for the "Additional" Child tax Credit which is a refundable tax credit.

This article is not intended to provide legal or accounting advice. Because the tax laws are complex, change constantly and each situation is unique, the reader is advised to do his or her own due diligence and consult with professionals in these areas.

About the Author

Learn more about how we can help you determine if you are eligible for the Child Tax Credit and other available income tax credits and about our competitively priced internet and paperless based approach to tax preparation at affordable prices. Sandor(Sandy) E. Lenner,CPA-MBA has been providing business and accounting services for over 35 years and enjoys working part-time at his wife's CPA firm