If you have three or more children and a low tax bill, you may need IRS Form 8812 to claim all of your child tax credit. Here are the details.

Qualifying children requirement

Before you can claim the additional child tax credit on Form 8812, you must evaluate whether your dependents meet all qualifying child requirements of the original child tax credit. The child can be your son, daughter, blood or step sibling, stepchild, foster child or the descendants of any of them, such as a niece or grandchild.

The child must not reach the age of 17 at any time during the tax year or provide more than half of their own financial support. Finally, each child you claim a credit for must have lived with you for more than half of the tax year. However, even if the child satisfies all of those requirements, you may not claim the credit unless you actually claim an exemption for each of them on your tax return; the mere eligibility to claim the child is insufficient.

Exceptions to qualifying child requirement

The IRS provides some exceptions to the requirement that the child reside with you for more than half of the tax year. These include any child that was born and also died within the same tax year, as long as your home was the child’s home while they were alive.

In addition, the IRS treats your child as living with you during periods they are away at school or in a juvenile detention facility, when you are away on business, receiving medical treatment or on active duty in the military. A noncustodial parent may also claim the credit if the custodial parent agrees not to claim the credit or an exemption for the child.

Income limitations

If you meet all other requirements but the amount of tax you owe at the end of the year is either zero or an amount that is less than the credit, you cannot claim the full child tax credit; however, you may be eligible for the reduced additional child tax credit if you complete IRS Form 8812.

For most taxpayers, the credit is also subject to a reduction if you have adjusted gross income in excess of the threshold that applies to your filing status. For example, if you file as a single, head of household, or qualifying widow(er) taxpayer for the 2017 tax year and have more than $75,000 in adjusted gross income ($55,000 for married filing separately, $110,000 for joint filers), the reduction increases as the amount exceeding the limit increases.

For 2019, the adjusted gross income amount that results in the credit phasing out begins at $200,000 for single, head of household, or married filing separate filers and $400,000 for joint filers. See table below under "How big is the child tax credit?" for current figures.

Know all about the child tax credit

You must have earned income.

When you prepare IRS Form 8812 and calculate the child tax credit you are eligible for, you must calculate the amount of your gross income that you earn. Essentially, this includes income you receive from work or by actively engaging in a business. It does not include most of the taxable income you earn from investing such as the interest from a savings account or the profit you earn from trading stocks during the year.

The child tax credit is a rare example of truth in advertising, because it is what it says it is: a tax credit that you're entitled to take if you have children who qualify. Not every parent will be able to claim the child tax credit, but those who do can expect to save thousands of dollars on their taxes.

If you have children, you won't want to miss this kind of money.

Tax laws can be extremely complicated, with many tax breaks requiring a lot of calculation to figure out just what you're entitled to receive. But when it comes to simplicity, you won't find many provisions better than the child tax credit.

How big is the child tax credit?

The credit lets you reduce your outstanding tax bill, including tax liability that you already covered by having federal income taxes withheld from your paycheck.

Other dependents are entitled to a smaller credit. Kids who are 17 or 18, or those who are full-time college students up to age 24, can qualify for a $500 tax credit, all of which is nonrefundable.

Why might I get less than the full child tax credit amount?

There are income limitations for those claiming the child tax credit. If your modified adjusted gross income, which includes just about every form of income you have but reduces the number by some eligible deductions, is more than lower income threshold listed above, then you'll start losing your credit.

For every $1,000 you make over the limit, the amount of credit you can claim falls by incrementally. As a result, if your income is too high, then you won't be able to claim the credit at all. But depending on how big their original credit was before getting reduced, others could see a partial credit.

What children qualify?

In addition to the age requirements, eligible children have to have lived with you at least half the year, and you have to have provided at least half of the child's financial support during the year. The child is not allowed to file a joint return.

The child must be related to the person claiming the credit. However, in addition to children, stepchildren, foster children, and adopted children are eligible, as are grandchildren, siblings, stepsiblings, half-siblings, nieces, and nephews. Finally, children must be U.S. citizens, nationals, or resident aliens.

For the $500 credit for other dependents, most of these requirements go away. The main requirement is that the person be eligible for you to claim as a dependent. Only citizens, nationals, and resident aliens can qualify.

What is the additional child tax credit?

The name of the additional child tax credit (ACTC) is confusing, because it's not really an additional credit, and it's not for an additional child. The ACTC refers to the refundable portion of the child tax credit, which as mentioned above is $1,400 per child.

However, to get the ACTC, you need to have earned income. Specifically, the amount of the credit can't be more than 15% of the amount by which your earnings exceeds $2,500.

What other credits can people with children claim?

There are some other credits that those with children should look at:

  • The child and dependent care tax credit pays 20% to 35% of eligible child care expenses for qualifying families with kids under age 13. Up to $3,000 in expenses for one child or $6,000 for two or more children can qualify.
  • The earned income tax credit provides a refundable credit for low- and middle-income taxpayers. Families with children can qualify for much larger credits under this provision than those without children.

Your kids deserve credit

Having a family is expensive, and you want to take every chance to get money you can use toward supporting your children. The child tax credit can cut your taxes and leave you with more to spend on what really matters.

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