the CPA Moms -

Use Child Tax Credit for Tax Savings   
Keith Hoyng

Now, here's a real tax savings to the individual taxpayer with dependents.

The child tax credit is a direct federal income tax credit based on the number of dependent children in your family. This federal tax credit is available to provide credit to taxpayers with income below certain established levels. Started in 2003 and going to 2010, the maximum credit per child is $1000 and is first applied to reduce or eliminate the taxpayer's federal tax liability. In 2011, the Sunset Provision will decrease the tax credit unless the credit is extended or made permanent.
How does this federal tax credit work and who qualifies for this credit? Well, let's start with the last question first. Every family with children qualifies, however the federal tax credit phases out when income is above $110,000 for married filing jointly, $75,000 for single, head of household, or widow, and $55,000 for married filing separately. In addition, the child tax credit might be limited by the amount of income tax you owe as well as any alternative minimum tax you might owe. But like everything else in this world, there are exceptions. If the amount of your child tax credit is greater than the amount of federal income tax you owe, you may be able to claim a portion or all of the difference as an "additional" Child Tax Credit. First exception: if your earned income exceeds $10,750, you may be able to claim up to 15 percent of that amount. Second exception: if you have three or more qualifying dependent children in your family, you may claim up to the amount of Social Security taxes you paid during the year, minus any Earned Income Tax Credit you received. If you qualify under both these exceptions, you receive the greater of the two amounts, up to the difference between your federal tax liability and your regular Child Tax Credit. You may want to seek a tax professional for help with this credit.
Now, to answer the "how does it work" aspect; the best approach might be to simply break down the requirements, and explain each fully. The child tax credit is the responsibility of the Internal Revenue Service (IRS), and the credit issuance is determined through the federal tax returns the individual taxpayer completes each year. Taxpayers must complete either the 1040 or the 1040A and the IRS form 8812. The IRS will then determine eligibility, and process accordingly; the requirements and limits change each year, so the individual's eligibility may change each year.

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