There are many tax breaks allowed for individuals with children. In addition to the exemption deduction, the child and dependent care deduction, and the earned income credit, the child tax credit is another beneficial way to reduce your tax burden. However, because of the complicated nature of the child tax credit and the additional child tax credit, utilizing professional software, such as is available at TaxBrain.com, is a way to ensure proper tax preparation and the ability to claim the most deductions and credits available.
In order for a child to meet the criteria to be claimed for the child tax credit, they must be “qualified”, meaning they must meet certain relationship requirements, be under the age of 17 at the end of 2005, did not provide over half of their own support, lived with you for more than half of the year, and be a U.S. citizen, U.S. national, or resident of the United States.
Basically, the child tax credit is an additional credit to reduce the amount of taxes you pay. The maximum amount you may claim per qualified child is $1,000; however, this depends on several factors. One, you must actually have a tax liability to claim the credit. If your tax burden is $0, you do not have any taxes to reduce and therefore may not claim the credit to the full extent. There are also income requirements to fully benefit from the child tax credit. If your modified adjusted gross income is over $110,000 (married filing jointly), $75,000 (single, head of household, qualifying widow), or $55,000 (married filing separately), the credit would be reduced. However, if either of these factors excludes you from claiming the full child tax credit, you may be allowed to claim the additional child tax credit and receive a refund anyway.
You may also have the option to claim an additional child tax credit if you have three or more qualifying children up the amount of social security taxes you paid during the year minus the amount of earned income credit you received.
For optimized deduction purposes, you should utilize the child tax credit in correlation with the earned income credit and child and dependent care credit if possible. As stated earlier, you may claim up to $1,000 per qualifying child for the child tax credit, assuming you met the requirements. The earned income credit may be claimed up to $4,400, although this amount is reduced based on your income. The child and dependent care credit is available for $3,000 for one qualifying person or $6,000 for two or more qualifying individuals. Therefore, if you qualify for the full amounts of the credits, you may be eligible for an additional benefit of $8,400 for one qualifying child. While it is unlikely you will qualify for the full amount of each credit, especially the earned income credit, it is easy to see the potential savings of these credits.