The Child Tax Credit Reduction attacks families in the pocketbook where it hurt most, but there are still other tax reductions that can help.
The Child Tax Credit is an important tax credit for families. For the last three years, it has been worth as much as $1,000, per qualifying child under 17, depending on the income of the taxpayer. Unfortunately, this $1000 enhanced child tax credit, which was extended by the Tax Relief Act of 2010 HR 5843 for two additional years (2011 and 2012), is about to end. This means without additional legislation the enhanced child tax credit of $1,000 maximum credit per child will be set at $500 per child starting in 2013.
The child tax credit is used by governments to help lessen the burden that raising children places on families. Children are the life blood of a nation. When the child birth rate is slowed nations suffer. Most civilized nations recognize this and apply credits to help encourage families to have children.
Child Tax Credit Rules for 2013
The 2013 Child Tax Credit will be $500 per child. This means that a family will be able to reduce their federal income tax by up to $500 for each qualifying child under the age of 17. A child for this credit qualifies under these six tests: age, relationship, support, dependent, citizenship, and residence.
1. Age Test – A child must have been under age 17 at the end of 2013.
2. Relationship Test – The child must be a son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of one of these individuals. An adopted child is always treated as your own child. An adopted child includes a child lawfully placed with you for legal adoption.
3. Support Test – The taxpayer must provide more than half of the child’s support.
4. Dependent Test – The child must be claimed as a dependent on the federal tax return.
5. Citizenship Test – The child must be a U.S. citizen, U.S. national, or U.S. resident alien.
6. Residence Test – With some exceptions, the child must have lived with you for more than half of 2013.
7. Limitations – The child tax credit is limited if your modified adjusted gross income is above a certain amount and then it is phased out, In addition, the Child Tax Credit is generally limited by the amount of the income tax you owe as well as any alternative minimum tax you owe.
8. Additional Child Tax Credit – If the amount of your Child Tax Credit is greater than the amount of income tax you owe, you may be able to claim the Additional Child Tax Credit.
Child Tax Credit Alternatives
With the child tax credit being cut in half, families may be looking for alternative tax cuts. It is expensive to raise children. With costs of essentials like food and fuel on the rise, the average family is being pinched to make ends meet. Many parents may have the feeling that the government has turned its back on them. They feel like every penny is being shaken from their pockets.
There are several techniques that can help a family control taxes. One is shifting income. Although the value of the technique has been drastically limited by the IRS, by the “kiddy tax,” it can still put five or ten thousand extra dollars in a family’s pocket each year, just through the tax savings it offers. Check out the Ten Tax Tips we have developed that any family should be able to use.