How to Calculate Child Tax Credit

You might be eligible to receive a credit of up to $2,000 for each dependent.

You might be eligible to receive a credit of up to $2,000 for each dependent.

If you're a parent this tax season, all the money you put into fancy diapers, soccer practices and school supplies for your kids can translate into federal tax perks. For each qualifying child, you may enjoy a tax credit of up to $2,000.

Of course, your child has to qualify, and the amount of the credit depends on your income level, so exactly how much you'll save varies. Lucky for you, you won't need a child tax credit calculator to figure it out; this is one tax credit the IRS makes mercifully easy to understand.

Tip

Calculating the child tax credit boils down to your modified adjusted gross income. The eligible income threshold ranges from $55,000 to $400,000, depending on the year and filing situation.

Calculate the Child Tax Credit

First and foremost, your child has to be a U.S. citizen who is 16 years of age or under at the end of the tax year for you to qualify for the credit. For each child, you're eligible for a credit of up to $2,000, which will be adjusted based on your income.

In a nutshell, here's how the income-based child tax credit phase out works: The credit amount is reduced by $50 for every $1,000 your income exceeds the threshold amount. The income figure is based on your modified adjusted gross income, and the thresholds vary depending on the tax year.

To claim the benefit, you'll have to file a federal form 1040, 1040A or 1040NR – not a 1040EZ.

Exceptions and Details

If your child is a stepchild, adopted child, sibling, grandchild or even great-grandchild, niece or nephew, you can still claim the credit if he is your dependent. If you provided more than half of his financial support and he lived with you for more than six months during the tax year, he qualifies. If a child is born or dies during the year, he's still eligible, even if he didn't technically reside with you for six or more months.

Typically, this credit is nonrefundable, so if the credit amount exceeds your tax liability, you'll just get a tax bill of zero. However, via the Additional Child Tax Credit, you may be eligible to get a check for the difference. If you made more than $2,500 in earned income and have at least one qualifying child, you may be entitled to a refund of up to 15 percent of your earned income. If you made less than $2,500 and have at least three kids, the credit itself may be considered refundable. Complete Form 8812 if you think you might qualify for a refundable credit.

2018 Tax Laws

New laws for tax years 2018 and beyond actually doubled the child tax credit, bringing it up to the current $2,000 credit for each qualifying dependent, with a refundable amount up to $1,400. The child tax credit phase out is also more generous, beginning at $200,000 for singles and reaching up to $400,000 for joint filers.

The tax reform also includes a $500 nonrefundable "family credit," which allows you to claim other dependents not defined as qualifying children.

2017 Child Tax Credit Phase Out

For the child tax deduction in 2016, 2017 and before, the income thresholds are a little different and a little more stringent. If you're filing a joint return, the threshold is $110,000. It's $75,000 for unmarried individuals or $55,000 for married taxpayers filing separate returns. These pre-reform tax years may not be eligible for the "family credit."

Tips

  • 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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About the Author

Dan's decade-long experience as a freelance writer and small business owner has seen him contribute to financial publications including Chron.com, Zacks.com, MSN Money, Fortune, Motley Fool and others.

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