2009 Child Tax Credit

Changes in the IRS tax code are allowing more taxpayers to take greater advantage of the Child Tax Credit. Unlike deductions such as medical expenses or mortgage interest, a tax credit reduces a tax bill dollar for dollar. This means qualifying for the Child Tax Credit can make your tax bill zero and in some cases a taxpayer may even be entitled to a refund of some or all of the Child Tax Credit.

The Child Tax Credit for the 2009 tax year is $1,000 per qualifying child. According to the IRS website a child can be claimed for this credit if the following criteria are met:

Qualifying Child

1. Child must be under age 17 at the end of 2009.
2. 
   
3. Child is a son, daughter, stepchild, sibling, step sibling, foster child, or a descendant of any of these. (i.e. niece, nephew, grandchild)
4. 
   
5. Child lived with taxpayer for more than half of 2009.
6. 
   
7. Child did not provide more than half of his or her own support.
8. 
   
9. Child is claimed as a dependent by the taxpayer.
10. 
    
11. Child is a United States citizen, a United States National, or a United States Resident alien.
12. 
    
13. Adopted children are treated the same as biological children to qualify for the second criteria above. A child adopted from a foreign country is qualified under criteria six if the taxpayer is a United States citizen or a United States national and the adopted child lived in the taxpayer's household for the entire year.
14. 
    
15. If a child was born or died in 2009, the child is considered to have lived with the taxpayer all year as long as the taxpayer and child shared a home for the entire time the child was alive in 2009.

The amount of the 2009 Child Tax Credit is calculated based on taxpayer's Adjusted Gross Income(AGI). The 2009 Child Tax Credit is reduced or eliminated above certain income thresholds. For every $1,000 of adjusted gross income above the threshold amount the Child Tax Credit is reduced by $50.

The adjusted gross income thresholds are:

• $75,000 for an unmarried individual
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• $110,000 for married individuals filing a joint return
• 
  
• $55,000 for married individuals filing separate returns

Examples:

• A single woman has two qualifying children and adjusted gross income of $82,500. Her AGI exceeds the threshold level by $7,500. Her $2,000 child tax credit would be reduced by $50 for every thousand or part of a thousand that she exceeds the threshold level. So she is eligible for a child tax credit of $1,600.
• 
  $1,000 per child x 2 = $2,000.
  AGI of $82,500 - $75,000 (AGI threshold for single filers) = $7,500.
  $50 x 8 = $400 ($50 reduction for every thousand or part of a thousand)
  $2,000 - $400 = $1,600 eligible child tax credit
• A married couple filing a joint return have three qualifying children and adjusted gross income of $100,000. Since their adjusted gross income level is below the threshold amount they can claim the full $3,000 child tax credit.
• 
  
• A married individual filing a separate return has three qualifying children and an adjusted gross income of $75,000. His or her adjusted gross income exceeds the threshold for married filing separately by $20,000. He or she is eligible for a child tax credit of $2,000.
• 
  $1,000 per child x 3 = $3,000.
  AGI of $75,500 - $55,000 (threshold for married filing separate) = $20,000.
  $50 x 20 = $1,000 ($50 reduction for every thousand or part of a thousand)
  $3,000 - $1,000 = $2,000 eligible child tax credit

  *For married people filing separately only one person can claim the child tax credit for each child. The taxpayer that claims the child as a dependent on his or her tax return also claims the child tax credit for that child. If both partners are eligible to claim a qualifying child, taxpayers can choose who claims the child. In the example above, if the marriage partner was eligible for the full Child Tax Credit of $3,000 then he or she could claim all three children provided the qualifying conditions were met.

Most taxpayers can only use the Child Tax Credit to reduce their tax bill. If their tax credit exceeds what they owe in taxes, their tax bill is reduced to zero, but they will not receive a refund for any unused credit. Some taxpayers do qualify for a refund under the Additional Child Tax Credit.

• Taxpayers with at least one qualifying child and earned income greater than $3,000 may be eligible to receive an Additional Child Tax Credit refund equal to 15% of their earned income that exceeds $3,000.
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• Taxpayers with less than $3,000 of earned income and three or more qualifying children may be eligible to receive an Additional Child Tax Credit refund if the amount he or she paid in Social Security Taxes exceeds the earned income credit.
• The Additional Child Tax Credit calculation involves a series of worksheets that come with tax forms and there are too many variables for simple examples. You can use either H&R Block.com or the Turbo Tax website to calculate your federal taxes for free. Both of these sites charge to print and/or e-file file some tax returns, but you can enter your information for free. You can use this service to check your calculations and help you figure the correct amounts for taxes, credits, deductions, and refunds.

  The changes made to the tax law for this year will allow more taxpayers to take advantage of the Child Tax Credit. Although the calculations may seem intimidating, you can take advantage of free online resources to double check your calculations and help you make the best decisions to minimize your tax bill or maximize your refund.

  Sources:
  IRS Publication 972 - Child Tax Credit

  Turbo Tax - Child Tax Credit Page