Want to save $1,000? Do you have children? A Child Tax Credit is available to most taxpayers for each “qualifying” child.
The Child Tax Credit is a flat $1,000 reduction in the amount of tax you owe the IRS.
A qualifying child is a child who is under 17 and is one of the following:
- Your son or daughter
- Your stepson/stepdaughter
- Your grandchild or eligible foster child that you are able to claim as a dependent
Here’s more about who is considered a qualifying child.
However, the Child Tax Credit is phased out for people whose income is greater than $110,000 (married) or $75,000 (single or head of household). This phase out means that for every $1000 over the income threshold, you lose $50 off the $1,000 credit.
Example #1: Steve and Ann are married and have 3 dependent kids under the age of 17. Their combined income is $100,000. The amount of the tax credit they can claim on their tax return is $3,000.
Example #2 : Steve and Ann are married and have 3 dependent kids ages 12,15,18. Their combined income is $120,000. Because one of their kids is over 17, they can no longer claim him for a tax credit. Also, because their income is over $110,000 their tax credits is phased out as follows:
$120,000-$110,000 = $10,000
$10,000/$1,000 = $10
$10 x $50 = $500
$2,000 – $500 = $1,500
Therefore, the total amount of their Child Tax Credit is $1,500.
The Child Tax Credit is a simple and easy way to save a few bucks each year when tax time rolls around.