The Child Tax Credit is $1,000 for each qualifying child. The child tax credit is a non-refundable tax credit, it is reduceto the taxpayer’s tax liability.
Tax liability mean the amount you will have to pay tax to the IRS. But with Child Tax Credit it will reduce the income tax liability.
Child Tax Credit is not a tax deduction of income(gross adjusted income) but it is a reduction of income tax(the amount you end up paying the IRS).
For Example if you have a tax liability of $3,000 and you have 5 child dependents, your Child Tax Credit would be $3,000, not $5,000. It will remove the income tax to zero. and since it is non-refundable you can got get any of it refund to you from Child Tax Credit. However, in order to get some of it. The is another credit call Additional Child Tax Credit. This is will help you get partial of the remaining credit base on you earned income. We will post this topic later on…
Now let look at Child Tax Credit requirement.
To claim this Child Tax Credit there are six test you have to pass: Age, relationship, support, dependent, citizenship, and residence.
1) The first requirement for the Child Tax Credit is that the child has to be under age 17 as of the end of the year in question. Note: under age 17 at the end of the year, so this means that if the child turns 17 at any point during the year, even on December 31, the Child Tax Credit no longer applies
2) Secondly, the Child Tax Credit is dependent upon the child in question meeting the requirements of the IRS definition of a “qualifying child.” The following definition of “qualifying child” is taken directly from the IRS website: “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.” In other words, there are many relationships that qualify, but there are also some relationships that do not qualify.
Example, if a boyfriend and girlfriend are living together with the girlfriend’s children, the boyfriend could not claim the Child Tax Credit for those kids.
3) The third test for the Child Tax Credit dictates that a child that provided more than 50 percent of their own support cannot be claimed by another taxpayer for the purposes of the Child Tax Credit.
4) Fourth, to claim the Child Tax Credit, the taxpayer must be claiming that child as a dependent. That is, the taxpayer must be able to claim an exemption for that child, meaning that the taxpayer supported that child more than 50 percent during the year. There are rare exceptions to this rule. For example, if the qualifying child is married and filing a joint return, the married couple may be able to claim the dependency exemption for the married child, while the parent takes the Child Tax Credit for the married child.
Generally speaking, the Child Tax Credit can be thought of as inseparable from the dependency exemption. Divorced parents cannot, for instance, “split the benefit” by having one parent claim the child as a dependent and the other parent claim the Child Tax Credit.
5) The fifth test concerns citizenship. For the Child Tax Credit, the child must either be a U.S. citizen, U.S. resident, U.S. national, or a resident of Canada or Mexico. There are exceptions to this rule for certain children who have been adopted from foreign countries.
6) That brings us to the sixth and final test and that is the residency test. In order to claim the Child Tax Credit, the child generally speaking must “have the same principal residence as the taxpayer for more than half the year.” There are exceptions to this requirement, too, though, such as for children of divorced or separated parents, kidnapped children, temporary absences, and for children who were born or died during the year. It may be intimidating to see these six tests, all these rules, all these exceptions to the rules, and we are only talking about one credit here.