Child Tax Credit
Learning Objective
Be able to compute the child tax creditchild tax creditCredit allowed for dependent children under age 17..
Individual taxpayers are permitted to take a tax credit based on the number of their dependent children. The children must be under age 17, U.S. citizens, claimed as dependents on the taxpayer’s return, and meet the definition of “qualifying child” discussed in Chapter 2, The Federal Income Tax Return of this text.
For 2008 the child tax credit is $1,000 per qualifying child. The available credit begins phasing out when AGI reaches $110,000 for joint filers ($55,000 for married taxpayers filing separately) and $75,000 for single or head of household taxpayers. The credit is phased out by $50 for each $1,000 (or part thereof) of AGI above the threshold amounts. Since the maximum credit available depends on the number of qualifying children, the income level at which the credit is fully phased out also depends on the number of children qualifying for the credit.
Example
Christel and Chris are married and file a joint tax return claiming their two children, ages 11 and 8, as dependents. Their AGI for 2008 is $128,100. Christel and Chris’s child tax credit for 2008 is phaseout of $950. The phaseout of $950 is computed as: $128,100 − $110,000/$1,000 = 18.1. Round 18.1 to the next highest number, 19. 19 × $50 = $950.
A complex alternative credit calculation may apply for families who are eligible for a credit that is greater than their tax due and for families with three or more children. For 2008, a taxpayer may receive a refund of the credit of 15% of the earned income in excess of $8,500. Details of the requirements are in IRS Publication 972 and the calculation and credit is claimed on Form 8812, Additional Child Tax Credit.
Go to Publication 17 and read Chapter 34: Child Tax Credit.
Questions
Ray and Phyllis are married and file a joint tax return claiming their three children, ages 2, 8, and 18, as dependents. Their AGI is $105,300. What is their total child tax credit?
$600
$1,200
$1,000
$2,000
Some other amount
Eliza is divorced and files a head of household tax return claiming her children, ages 2, 4, and 6, as dependents. Her AGI is $78,200. What is Eliza’s total child tax credit?
$1,700
$1,800
$1,900
$2,000
Some other amount
