UNDERSTANDING THE “CHILD DEPENDENT” TAX CREDIT
Additional Child Tax Credit – Refundable Credit
You may be eligible to claim a refundable “Additional Child Tax Credit” if you receive less than the maximum $1,000 per qualifying child for the Child Tax Credit (because it is more than your tax liability), as long as you earned more than $3,000 during the tax year.
If you have adopted a child, or are in the process during the tax year, and you paid for the adoption expenses, you may be eligible to claim a tax credit of up to $13,810 per child for qualified adoption expenses. However, if your modified adjusted gross income is $247,140 or more, you are not eligible for the Adoption Credit. This credit is a nonrefundable, personal credit and taxpayers are allowed to claim any unclaimed credits for up to five years. If you qualify for this credit, your tax return can be e-filed.
Child Care Expenses
If you are a working parent with children under the age of 13 (or dependents who are unable to care for themselves), you may be eligible to claim a credit for the cost of your child care. Even if you are not currently employed but are looking for work, you may be eligible for this credit. Depending on your adjusted gross income, you may qualify to receive as much as $1,050 (for one qualifying child) or $2,100 (for more than one child).
In-Home Child Care
If you paid someone to come to your home to care for your child, rather than taking your child to a child care provider, you may be considered an “employer” who is required to pay employment taxes. This only applies to your payment to child care providers who come to your home.
If you’re a working parent who does qualify to claim a tax credit for child care expenses, you must provide the IRS with the child care provider’s information, including name, address, and taxpayer identification number (TIN), which can either be their Social Security number (in the case of individuals) or an employer identification number (EIN) (in the case of day care centers). If the provider is a church or other non-profit group without an EIN, you may write “tax exempt” in the box asking for the provider’s TIN.
Active duty military personnel in a combat zone can calculate their income in two different ways for the credit for Child and Dependent Care Expenses. It is your right to determine whether or not to include your combat pay as earned income for child/dependent care expense credit claims. However, keep in mind that this calculation could affect how much of your child/dependent care expenses actually qualify for the child care credit. To ensure you receive the best tax return, try calculating your child/dependent care expenses both ways: including and not including any combat pay you’ve received as earned income, then file accordingly.
Child support is neither counted as income of the recipient parent, nor can it be claimed as a deduction by the paying parent. The parent with whom the child lives more than half the year is deemed the “custodial parent.” In order for the non-custodial parent to claim a dependency exemption, he/she must include a signed “Release of Claim to Exemption for Child of Divorced or Separated Parents” form (Form 8332) in their tax return.
Child Tax Credit – Combat Pay
Although one is not permitted to include combat pay in their earned income for purposes of calculating federal income tax, combat pay can be included as earned income when calculating the Additional Child Tax Credit. Because the amount of this credit is based, in part, on your earned income, this could mean those with a lower taxable income are qualified for a higher child tax credit.
Child Tax Credit – Qualifying Dependent
You may qualify for a credit of up to $2,000 for each qualifying child who:
Is under the age of 17 at the end of the year
Is your child, stepchild, adopted child, eligible foster child (or descendant of these), or your sibling, step-sibling (or descendant of these)
Has lived with you, or the custodial parent, for more than half of the year
Did not provide more than half of their own support
Was claimed as a dependent by you on your tax return
Is a U.S. citizen or a U.S. national or resident for some part of the year, typically
Children’s Investment Credit
If your qualifying child, under 18, has any investment income exceeding $2,100, part of the amount may be taxed at the parent’s tax rate. The child may file their own tax return (including Form 8615, Tax for Certain Children Who Have Unearned Income), or you may be able to file Form 8814 (Parent’s Election to Report Child’s Interest and Dividends), and report your child’s income on your own tax return.
Standard Deduction- Dependent on Another’s Return
For those individuals whose income has been claimed as an exemption on another person’s tax return, their deduction is limited to (a) $1,050, or (b) the individual’s earned income plus $350, whichever is greater. The deduction cannot exceed the single standard deduction amount of $6,350 for this year.