If you have children younger than 17, you might qualify for the Internal Revenue Service child tax credit. This credit reduces your income tax and might even bring it down to zero. If your tax has been fully reduced to zero and you still have child tax credit left, you might be able to recoup the rest in an additional child tax credit. Other credits don’t allow you to carryover or recover any unused credit, so you’ll want to claim other credits you’re entitled to before you calculate your child tax credit.
Calculate your adjusted gross income for the year. Your AGI is shown on line 38 of your 1040 form and includes your income from all sources, minus certain deductions for items such as IRA contributions, student loan interest and moving expenses. When you’re figuring your deductions, you’ll need to include the items shown on lines 23 through 35 of Form 1040.
Calculate your taxable income. Look in the upper left margin of page 2 of the 1040 form. You’ll see a list of standard deductions for each filing status. If you’re not itemizing deductions on Schedule A, subtract the standard deduction for your status from your AGI. If you’re itemizing and your Schedule A deductions equal more than the standard amount, subtract your itemized deductions from AGI instead. After you subtract the standard or itemized deduction, multiply the number of people you’re claiming on your return by the personal exemption amount shown on line 42. Subtract the personal exemption total from your running calculation. The result is your taxable income.
Calculate your tax. Look at the tax tables near the back of the 1040 instructions. Find your taxable income range and filing status. The amount shown on the table equals your tax.
Calculate credits you’re eligible to claim on lines 47 through 50 of the 1040 form. Credits on these lines include the child and dependent care credit, education credits and the retirement savings credit.
Multiply the number of eligible children you’re claiming by the per-child credit limit. As of July 2012, you can receive up to $1,000 per child younger than 17, so if you're calculating credit in 2012, you'll multiply $1,000 by the number of eligible children you're claiming. The result is your potential child tax credit. Visit the irs.gov website for credit limit details.
Subtract your credits from lines 47 through 50 from your tax amount. The result is your remaining tax due. If the result is positive, your child tax credit equals the lesser of the remaining tax due or your potential child tax credit. If the result is negative, you don’t have any tax left to reduce and can’t claim the regular child tax credit. You might be able to take the additional child tax credit, though, up to the amount of your potential child tax credit. The additional child tax credit is a refundable credit, which means if you qualify, you’ll get the credit even if you don’t owe any tax. This requires a separate calculation, so check IRS Form 8812 for details.
- Income limits apply to credit eligibility. As of publication, the limit for married couples filing a joint return is $110,000, the limit for single or head of household filers is $75,000 and the limit for married couples who file separate returns is $55,000. If your income is above the limit for your filing status, your child tax credit will be reduced or eliminated. Review the 1040 instructions for line 51 for details.
- Your credit can be affected if you claim foreign income or a foreign income exclusion. Some other credits affect your child tax credit and include the Form 8396 Mortgage Interest Credit, the Form 8859 District of Columbia First Time Home-Buyer Credit and some Form 5695 Residential Energy Credits. See IRS Publication 972 for details.
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