What is a Child Tax Credit?

Most people don’t enjoy paying taxes, but the American Taxpayer Relief Act of 2012 (ATRA) provides a tax credit that can reduce the amount of taxes that America’s families have to pay. While some wealthier families may not be eligible for the full amount or any amount at all of the Child Tax Credit, the majority of American families will be eligible to receive up to $1,000 per child per family.

What is the Child Tax Credit?

American parents who make less than $130,000 a year are eligible for at least a portion of the Child Tax Credit. The maximum amount parents can receive per child under 16 years old is $1,000, but parents who make more than $110,000 will lose $50 per $1,000 that they are over that $110,000 limit. The Child Tax Credit counts as a tax credit rather than a deduction, which reduces the amount of taxes owed rather than resulting in a tax refund.

How Does the Child Tax Credit Work?

In the past, American parents have received tax breaks per child with the amount received depending on a variety of variables. This meant that parents would list their children as dependents on their tax forms and would then receive money back per child as part of the tax refund. The Child Tax Credit, however, functions as a tax credit, meaning that parents simply list their children as dependents and then take off either the full $1,000 or whatever portion they would get by income off of the taxes they owe. Children must meet multiple qualifications in order to qualify for the Child Tax Credit, however, so parents should make sure that their children meet all the criteria before claiming the tax credit.

What are the Qualifications for the Child Tax Credit?

Children must meet 6 basic qualifications in order to be qualified for the Child Tax Credit. First, they must have been younger than 17 years old at the end of the calendar year. They also must be either blood relatives of the parents (son, daughter, grandchild, niece, etc.), step relatives of the parents (stepdaughter, stepson, etc.), or children placed in the home via adoption or foster care. The parents must have provided more than half of the children’s support; they must also have declared their children on their federal tax returns. A child must be an American citizen, a U.S. national, or a U.S. resident alien. With only a few exceptions, the child must have lived with the parents for over half of the calendar year.

Depending on the circumstances, parents whose Child Tax Credits exceed the amount of taxes they owe may be eligible for the Additional Child Tax Credit. In this case, not only would a person’s tax requirements be eliminated; that person also might be entitled to receive the remainder of the Child Tax Credit as money.