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Use Child Tax Credit For Tax Savings
By: 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.
In order to qualify, a family must have earned at least $10,500 in income, and
that figure will rise each year, according to inflation. There must also be at
least one qualifying child. In order to be classified as a “qualifying child”,
the child must meet the following requirements: under age 17 of the tax year,
claimed on your tax return as a dependent, must pass the relationship test (son,
daughter, stepchild, grandchild, brother, sister, foster child, adopted child,
etc.), be a US citizen or a resident alien, and have a social security number.
During its original year of inception, many families with qualifying children
were mailed an advance federal income tax credit of either $300 or $400 dollars;
but they were also told this would reduce their end-of-year tax credit, dollar
for dollar.
The method used for determining the tax credit is fairly simple, and is not
difficult to calculate; however, any individual taxpayer with uncertainty should
seek the advice and assistance of a tax professional when preparing their
federal tax return.
The credits, as stated earlier are claimed when you complete a 1040 or 1040A and
file your returns with the Internal Revenue Service. Although many individual
taxpayers pay for a professional to complete their federal tax returns each
year, there are qualified preparers that are available free of charge each year,
through the IRS; either way, make sure that you communicate your qualifications
for the child tax credit, and check your tax return to see that the credit was
applied. You do not want to let this tax credit slip by.
The child tax credit, along with the Hope and Lifetime Learning credits are a
direct means to affect the individual taxpayer’s tax liability and offer some
level of tax relief. This is meant to help parents with the costs associated in
raising children, and educating them. Most often, the child tax credit is a way
to alleviate the existing federal tax liability for middle-income taxpayers. For
the extremely low income families, there is often no income tax due, so there is
no allowable tax credit. Although it does not help the poverty level families as
a form of federal income tax refund or tax-free income, it does help to
alleviate any federal tax liability. The Earned Income Credit is used by many
poverty level or low-income families as a supplement to their earned income.
About the Author:
Keith Hoyng is the web master and operator of http://www.quickcash2u.com which
is an excellent source of tax and debt relief and much more key financial
information. Visit us at http://www.quickcash2u.com/TaxHelp.htm
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