How to Calculate Child Tax Credit

The child tax credit is available to reduce federal tax liability dollar for dollar.
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Federal tax rules allow you to claim a credit against taxes owed for a "qualified" child. The credit reached $1,000 as of tax year 2014, and reduces your tax liability dollar-for-dollar, making it more valuable than an exemption or deduction from income. The key to figuring the amount of your credit is proving the claim adheres to Internal Revenue Service guidelines.

Qualifying Child

Your child must qualify under IRS standards for you to claim the child tax credit on Form 1040. The child must be under 17 during the tax year for which you claim the credit, and can be your son or daughter, stepchild, sibling, half-brother, half-sister, stepbrother or stepsister. In addition, the direct descendant of any of these relatives also would meet the relationship qualification.

Other Qualifications

A qualifying child must be claimed as a dependent on your tax return, must have provided less than half of his own support, and must have lived with you for more than half the year. If your claiming the credit for an infant who was born during the year, the child must have lived with you for at least half of the time after the birth. In addition, the child must be a citizen, US national or legal resident alien.

Calculating the Credit

The IRS provides a worksheet in the 1040 Instruction booklet that takes you through the steps of calculating the child tax credit. In general, each qualifying child allows a credit of $1,000, which is subtracted from your tax liability. For two qualifying children, the tax credit would amount to $2,000. If your tax liability is less than the credit amount, then the child tax credit is limited to the balance, but your financial circumstances may also make you eligible for the "additional child tax credit," which would result in a refund from the IRS.

Phaseout of the Child Tax Credit

The IRS requires a further calculation for those with higher adjusted gross incomes, which eventually results in phasing out the child tax credit. The thresholds are $110,000 for those filing married, joint returns, $75,000 for single filers, and $55,000 for those filing as married, separate. The reduction amounts to $50 for every $1,000 in income above these levels, until the credit phases reaches zero. As a result, if you are eligible for a child tax credit of $1,000, but have $20,000 or more in AGI above the threshold, you won't be able to claim any portion of the credit.

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