Taxpayers who claim one or more qualifying children as dependents may be entitled to a child tax credit of $1,000 per child.
The definition of qualifying child for purposes of the child tax credit is the same as that for a dependency exemption – except that the child must not have attained age 17 by the end of the tax year. The relationship, support, joint return and principal place of abode tests are the same as those for the dependency exemption.
The qualifying child must be either a U.S. citizen, national or resident of the United States.
This credit is allowed only for tax years consisting of 12 months. It is calculated by using a worksheet in the instruction booklet for the Form 1040 return.
There are income limitations on qualifying for the child tax credit. The child tax credit begins to phase out when taxpayers’ modified adjusted gross income (MAGI) reaches $110,000 for joint filers, $55,000 for married taxpayers filing separately and $75,000 for single taxpayers.
The credit is reduced by $50 for each $1,000, or fraction thereof, of MAGI above the threshold amount. For example, at $95,000 of MAGI, the credit is no longer available for a single person with one child. However, a single person with more than one child would still be able to claim a portion of the credit.
Generally, the child tax credit is considered to be a nonrefundable personal tax credit in 2014. All nonrefundable personal tax credits are allowed to the full extent of the taxpayer’s regular tax liability – reduced by the foreign tax credit – and alternative minimum tax liability.
An individual taxpayer with qualifying children may be eligible for a refundable additional credit in 2014 if:
➤ The taxpayer’s tax liability doesn’t fully absorb the otherwise allowable credit, and
➤ The taxpayer has earned income in excess of $3,000.
Taxpayers should discuss the details of the child tax credit with their tax preparer. ■
©2015 CPAmerica International