What is the Child Tax Credit?
The Child Tax Credit (CTC) is a federal tax credit for workers raising dependent children. This credit is worth up to $1,000 per “qualifying” dependent child under age 17 in 2006, and can be claimed on a worker’s federal tax return. Even some families that earned too little to owe income tax can get the credit. Eligible families will receive all or part of their CTC in the form of a refund check from the IRS. The Child Tax Credit is different than the Child and Dependent Care Credit. You may qualify for both.
The Child Tax Credit can give a worker back some or all of the income tax taken out of his or her paychecks during the year, as well as some additional income tax still owed at the end of the year. Generally, a family’s credit is equal to the total amount of their income tax for the year, up to a maximum of $1,000 per dependent child in 2006.
Who is eligible for the Child Tax Credit refund?
To be eligible for the CTC refund, single or married parents must:
- be able to claim an exemption for a dependent child under age 17 on their tax return, AND
- have taxable earned income above $11,300, AND
- have either a Social Security number or an Individual Taxpayer Identification number (ITIN), which are issued by the IRS to individuals who are unable to obtain a Social Security number. Immigrant workers with either type of number may be able to claim the CTC refund.
“Qualifying children” for the Child Tax Credit must be under age of 17 at the end of 2006, and must be a U.S. citizen or resident alien. The dependent must be a son, daughter, adopted child, grandchild or stepchild. They may also be brothers, sisters, stepbrothers or stepsisters, as well as descendants of such relatives. Foster children can be “qualifying children”, if they are dependents placed with the worker by an authorized government or private placement agency and have lived with the worker for the entire year.
How is the Child Tax Credit claimed?
This credit must be claimed on a worker’s tax return, either a Form 1040 or 1040A (but not the 1040EZ). Specific directions are included the 1040/1040A tax forms, including a detailed worksheet with instructions for calculating the maximum possible CTC. Additionally, you must complete Form 8812, Additional Child Tax Credit. This form is used to find out if you qualify for a refund and, if so, the amount of the refund. This form must be attached to the tax return to receive the refund.
An exception for familes with three or more children: Prior to 2001, some low-income families with three or more children have qualified for a Child Tax Credit refund. This provided a refund for larger families that owe little or no income tax but who pay Social Security payroll taxes that are greater than the amount of their Earned Income Credit. For these families, the refund they would receive under the CTC rules in effect before 2001 may be larger than the amount they would receive if the refund is calculated under current CTC rules. Form 8812 allows these families to claim the higher refund amount. In other words, the amount of the CTC refund these families receive can be based on either the calculation under current rules or the calculation used in the previous rules — they get whichever amount is higher.
Can Families Claim Both the CTC AND the Earned Income Credit?
Yes! Claiming the Child Tax Credit does not reduce benefits from the Earned Income Credit. Most low-income working families will qualify for both credits. However, some families may not qualify for the EIC but will still qualify for the Child Tax Credit. For example, a non-custodial parent who claims a child as a dependent can get the CTC, but cannot claim the EIC because the child does not live with her/him.
How Much Will I Receive?
Eligible families can get up to $1,000 for each dependent child under age 17 claimed on their tax return. The CTC first is used to reduce or eliminate a family’s income tax liability. Families may be able to get all or part of any remaining CTC as a refund.
The CTC refund is based on the amount by which the income of a worker (and spouse, if married) exceeds $11,300. Families with any CTC remaining after their income tax liability has been eliminated may receive a refund in the lesser of two amounts: Either the amount of the family’s CTC that remains, or 15 percent of the family’s earned income over $11,300. (For example, if a family earns $16,000, 15 percent of its income above $11,300 is $705: $16,000 – $11,000 = $4,000; 15 percent of $4,000 is $705.)
Does the CTC Affect Public Assistance Benefits?
No. The CTC does not count as income in determining eligibility for any federal, state or local program benefits, such as cash assistance (TANF), Medicaid, the State Children’s Health Insurance Program (SCHIP), food stamps, SSI, emergency heating assistance, or public or subsidized housing, financed even in part by federal funds. CTC refunds generally do not count toward resource limits in these programs in the month of receipt or the following month. States may have less restrictive policies for some programs.
Additional CTC Resources
Information on this page is from a free fact book by the Center on Budget and Policy Priorities. Download a free copy of this fact book (pdf) for additional information on tax credits and details about how to use them to get even more money back.
A copy of tax forms can be obtained from the IRS by calling 1-800-TAX-FORM or from www.irs.gov. Most tax forms are available at public libraries and main post offices. Hearing impaired people can call 1-800-829-4059.
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