Are you the parent of a child under the age of 17? You can claim a tax credit worth $1,000 per eligible child. Every tax year until the child turns 17 you are qualified to claim the Child Tax Credit in addition to the dependency exemption for the child, which means you can stack the savings.
Because you can claim the credit for each child under the age of 17, you may end up with more in credit than your required tax. If this happens, you may be entitled to a refund as long as you meet certain requirements.
In order to claim the credit, you must:
- Have a qualifying child, defined as a child under the age of 17 by the end of the tax year.
- Have a modified adjusted gross income is less than the set threshold for the year.
If your MAGI is more than the threshold, you still may be entitled to a reduced credit amount.
The child tax credit is refundable as long as you exceed the amount you owe in taxes in credit amount. It’s important to note that the credit refund is limited to 15% of all taxable earned income greater than $3,000. Earned income is defined as tips, salaries, wages, bonuses, commissions and other net profits. Even if you have three children but have an earned income less than $3,000, you may still qualify.
If you qualify for a refund of the Child Tax Credit, you can determine your amount through two different ways:
- Calculate 15% of your earned income in excess of $3,000
- Take the excess of your Social Security taxes, including the employer portion for self-employed taxpayers.
You should determine which method provides the greatest refund amount and use that one to get the best savings on your tax return.