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The Child Tax Credit: Extra Credit for Many Working Families!

What is the Child Tax Credit?

The Child Tax Credit (CTC) is a federal tax credit, worth up to $1,000 in 2010 for each qualifying child under age 17 claimed on the worker's tax return. While the CTC has been in effect since 1998, Congress made changes to the credit in 2001 that made it available to millions more low- and moderate-income working families, and provided many families a larger CTC than they could have received in the past. This "Additional CTC" is refundable, meaning some families can get the credit even if they owe no income tax. (These fact sheets refer to the "Additional CTC" as the "CTC refund.") Eligible families can receive the CTC refund in a check from the IRS.

Who Can Claim the Child Tax Credit refund?

To be eligible for the Child Tax Credit refund, a single or married worker must:

• have a qualifying child under age 17;
• have taxable earned income above $3,000; and
• have either a Social Security number (SSN) or an Individual Taxpayer Identification Number (ITIN). ITINs 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 eligible for the Child Tax Credit.

Can a working family get both the Child Tax Credit and the Earned Income Tax Credit?

Yes! Most low-wage working families that qualify for the CTC refund will also be eligible for the EITC. For many families that qualify for both credits, the EITC will be larger, but the Child Tax Credit still will provide a significant income boost.

Despite the overlap in eligible families, there are important differences in the eligibility rules for the two credits and in the procedures for claiming them. In addition, there are some working families that qualify for the CTC, but do not qualify for the EITC.

Which Children Qualify for the Child Tax Credit?

A child claimed for the Child Tax Credit must be under age 17 at the end of 2010. The child must live with the worker for more than half the year in the U.S. and must be either a citizen or a resident alien. "Qualifying children" include: sons, daughters, stepchildren, grandchildren, and adopted children. They may also be brothers, sisters, stepbrothers, or stepsisters -- as well as descendents of such relatives. Foster children can be claimed but only if they are placed with the worker by an authorized government or private placement agency.

NOTE:

• a child may not be claimed for the Child Tax Credit if the child provides over one-half of his or her own support and
• a non-custodial parent who is allowed to claim his or her child as a dependent by divorce or separation agreement is the parent entitled to claim the child for the Child Tax Credit. (In these cases, the custodial parent must sign IRS form 8332, "Release of Claim for Child of Divorces or Separated Parents," and the form must be attached to the tax return of the non-custodial parent). However, the non-custodial parent cannot claim the EITC because the child does not live with him for more than half of the year. If eligible, the parent with whom the child lives may claim the child for the EITC.

How do families get the Child Tax Credit refund?

1. File a federal income tax return -- Form 1040 or 1040A, but not 1040EZ. The instructions and worksheet included in the IRS tax form packet will help tax filers figure their income tax and calculate their maximum possible CTC. The CTC is first used to reduce or eliminate any income tax a tax filer owes. If any of the CTC is remaining after the income tax has been eliminated (i.e., if the family's income tax was less than its maximum CTC), the tax filer moves on to the next step in the process - Form 8812 (if the earned income is at least $3,000).

2. File Form 8812. Form 8812, "Additional Child Tax Credit," is used to find out if the family qualifies for a CTC refund and, if so, the amount of the refund. This form must be attached to the tax return for a family to receive the CTC refund.

How much will families receive?

• Eligible families can get up to $1,000 for each qualifying child under age 17 claimed on their tax return. (For example, a parent with two such children can claim a CTC of up to $2,000 --2 children X $1,000). 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 earned income of a worker exceeds $3,000. Families with any CTC remaining after their income tax liability has been eliminated may receive a refund in the lesser of two amounts: (1) the amount of the family's CTC that remains, or (2) 15 percent of the family's earned income over $3,000. (For example, if a family earns $15,000, 15 percent of its income above $3,000 is $1,800.00: $15,000 - $3,000 = $12,000; 15 percent of $12,000 is $1,800.)

Does the child tax credit affect public assistance benefits?

The CTC refund does not count as income in determining eligibility for any federal, state or local program benefits financed even in part by federal funds such as food stamps, SSI, or child care. Some benefit programs count the EITC as a resource under certain circumstances.

Can immigrant workers claim the child tax credit?

Immigrant workers must have either a Social Security number or an Individual Taxpayer Identification Number (ITIN) in order to claim the Child Tax Credit. Workers with a dependent living in Mexico or Canada often obtain ITINs in order to claim an exemption for the dependent on their tax return. However, a dependent child claimed for the CTC must be either a U.S. citizen or a resident alien who lives in the U.S.