Having children can mean you get some significant savings at tax time, relevant to your income and how old your children are. The child tax credit is worth as much $1,000 per child under the age of 17 by the end of the calendar year.

Unlike deductions, credits reduce the amount you owe in taxes, equal in amount of the credit. That means if you have three qualifying children, you can receive a tax credit for $3,000, effectively reducing the amount you owe to the federal government. Be aware, however, that there are income limits which affect your credit amount.

The Child Tax Credit does not affect the dependent exemptions you can claim for your children. In fact, this credit saves you even more because it’s in addition to other tax benefits you claim regarding dependents.

Claiming the Credit

To claim the Child Tax Credit, you must meet a few requirements:

• The child must be a U.S. Citizen or Resident.
• The child to be claimed must be your child, stepchild, adopted child, grandchild or great-grandchild. Now, thanks to a rule revision, you can also claim siblings, step-siblings, and half siblings that live with you. Foster children may qualify if they are legally placed in your care by an agency or court
• The child must have resided with you for over half of the year
• You are required to provide over half of the child’s support

When filing your return and claiming the credit, you have to report a Tax Identification Number for each child you claim. Usually this number is the same as the child’s Social Security Number.

Since this credit reduces the amount of taxes you owe for the year, you may be able to adjust your W-4 on file with your employer. You can tell if you are having too much tax withheld by how much is returned to you as a refund.

Refundability

For most tax payers, the child tax credit is not refundable. That means if you only owe $1,000 in taxes but have two qualifying children to claim – making the tax credit worth $2,000 – your liability will be reduced to zero and that’s that. The rest of the credit just goes away.

There is a special circumstance where the credit can be refundable, meaning the excess is returned to you as a refund. This is known as the Additional Child Tax Credit.

Calculating this additional bonus can become complicated, which is why it’s recommended you use professional tax software which can assist you. With one or more qualifying children, along with $3,000 or more of earned income, you may qualify to claim a refundable credit worth up to 15% of your earned income that exceeds $3,000. Earned income is any wages or compensation resulting from employment or services provided, including combat pay that is non-taxed.

If your earned income is less than $3,000 and you have three or more qualifying children, you may receive a credit if you paid more in Social Security taxes than you earned in income.

Income Threshold

The Child Tax Credit is phased out at higher income levels- even completely eliminated at certain thresholds. At the following thresholds, the credit is reduced by $50 for each $1,000 of AGI over the threshold amount:

$110,000 on a joint return

$75,000 for an unmarried individual

$55,000 for a married individual filing a separate return