Additional Child Tax Credit
Form 1040
Adoption Credit
Child Tax Credit
Citizen/Resident Test
Earned Income Credit
Filing Status
Qualifying Child
Qualifying Relative
Qualify as a Dependent

Additional Child Tax Credit

If you qualify for the child tax credit, you may be able to reduce the amount of federal income tax you owe the IRS by up to $1000 per qualifying child under 17. They have to pass the following requirements in order to be qualifying:

  • Age - under the age of 17 at the end of the tax year.
  • Relationship - biological child, adopted child, stepchild, eligible foster child, sibling, stepsibling, or a descendant of any of the following.
  • Citizenship - a US citizen, US national, or a resident of the US.
  • Support - they did not provide over half of their own support.
  • Living situation - they must have lived with the person filing for more than half of the taxable year (there are a few exceptions to this requirement). (See qualifying children section)

Of course, your credit may be limited if you make over a certain amount of income. The phase out amount is determined by your filing status:

  • Married filing jointly: $110,000
  • Married filing separately: $55,000
  • All others: $75,000

Your credit could also be limited by the amount of income tax you owe and any alternative income taxes you may owe.

If your child tax credit turns out to be more than the income tax you owe, then you could receive a refund of up to $1000 for each qualifying child.

You may claim the child tax credit using either the 1040 or the 1040A and the instructions for the proper form should be in the 1040 or 1040A instruction booklet. The form that you will need to file a child tax credit is also in publication 972.

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Form 1040

Form 1040 may be used by all tax filers, but is most commonly used by tax filers who have the following tax situations:

  • Received income from self employment
  • Income received as a shareholder in an S Corporation, as a partner in a partnership, or as a beneficiary in an estate or trust
  • Received form 1040-DIV, non-dividend distributions to be reported as capital gains
  • Able to exclude foreign earned income received as a US Citizen or resident alien
  • Held foreign financial account, such as securities account or bank account
  • Eligible for Health Coverage Tax Credit
  • Owe household employment taxes

For more information regarding form 1040EZ, please visit our articles.
Form 1040 also has 11 attachments, or "Schedules". Information regarding these schedules is as follows:

  • Schedules A and B contain Itemized Deductions. These deductions include Medical and Dental expenses, taxes paid, interest paid, charitable gifts, and job expenses
  • Schedule C contains Profit or Loss from a business
  • Schedule D contains Capital Gains and Losses
  • Schedule E is used for Supplemental Income and Loss from rental properties, royalties, partnerships, S corporations, estates, trusts and REMICs
  • Schedule EIC which is for Earned Income Credits
  • Schedule F to be used for Profit and Loss from Farming
  • Schedule H contains Household Employment tax information
  • Schedule J is the form used for Income Averaging for Farmers and Fisherman
  • Schedule R contains Credit for Elderly or Disabled
  • Schedule SE which is the Self Employment tax form

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Adoption Credit

The IRS allows you to receive an extra credit when you incur any adoption expenses you have occurred. Usually you will receive this credit in the following year after your expenses. For example, if you adoption process is finalized in September of 2007 then you can claim the credit when you file your taxes in 2008. The adoption credit can only reduce the amount of taxes that you owe and it cannot exceed that value. If your credit does exceed you're the amount you owe in taxes you are allowed to carry the remaining credit forward to the following year. You can keep using this carry forward process for up to 5 years.

Qualified adoption expenses are generally any expenses occurred while trying to adopt a child. This can include lawyer fees, traveling fees, any costs associated with going to court, and any adoption fees. The total of your qualifying adoption expenses is all of the aforementioned fees minus any amounts giving to you by your employer and/or government agency. Note: You cannot claim this credit if you are adopting a spouse's child. 

To receive an adoption credit, you need to file a Form 8839. There is a maximum amount you can receive for an adoption credit. Theses values are listed below: 

For 2008 tax season: Smaller of your qualified adoption expenses and $11,650.
For 2007 tax season: Smaller of your qualified adoption expenses and $11,390.
For 2006 tax season: Smaller of your qualified adoption expenses and $10,960. 

If your adjusted gross income is above the amounts below, you will not qualify for this credit: 

For 2007 tax season: $210,820
For 2006 tax season: $204,410 

There is also a phase out range for receiving the adoption credit: 

For 2007 tax season: $170,820 - $210,820
For 2006 tax season: $164,410 - $204,410

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Child Tax Credit

The child tax credit is one of the most popular methods that a family can use to reduce the amount of federal taxes they are. For each qualifying child, the child tax credit allows you to reduce the amount of federal taxes that you owe by $1,000. This credit will usually be limited by the amount of tax that you owe. For example, if you owe $2,100 in taxes and you have 4 children, then your tax is reduced to $0. It may be the case that you qualify for an additional child tax credit.

So what is a qualifying child? A qualifying child as the following characteristics:

  • U.S. Citizen - the child must be a citizen of the United States
  • Residency - for the year in which are claiming the credit, the child must have lived with you for over half over that year
  • Support - you must have provided over 50% of the child's support
  • Under 17 - the child must have been under the age of 17 years old on the last day of the year that you are filing the credit for
  • Relationship - the child's relationship to you must be one of the following:
    • Daughter
    • Son
    • Adopted Child
    • Step child
    • Any foster child that is eligible
    • Sister
    • Brother
    • Stepsister
    • Stepbrother
    • Can also be a child of any of the ones listed above

The child tax credit also has what is called a phase out range. The phase out range for the child tax credit is as follows. You have to find out what your modified adjusted gross income is. Once you determine that value, then you compare it to the following numbers:

  • Single - $75,000
  • Head of Household - $75,000
  • Qualifying Widow(er) - $75,000
  • Married Filing Separately - $55,000
  • Married Filing Jointly - $110,000

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Citizen/Resident Test

According to the IRS there are five dependency tests that must be met in order to define a dependent. One of these tests is the Citizen or Resident Test.

There are two key factors of this test:

  • You may not claim an exemption for a dependent, unless the person is a US citizen, resident alien, national, or a resident of Canada or Mexico for at least part of the tax year.
  • If you are a US citizen or national who has legally adopted a child who is not a US citizen, resident alien, or national, this test is met if the dependent lived in your household for the whole tax year.

Please also note that foreign students who stay in your household as part of an international education exchange program would not qualify as dependents.

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Earned Income Credit

The Earned Income Tax Credit (usually referred to as Earned Income Credit or EIC) is a tax credit reserved primarily for low income families. The earned income credit is one of the few credits that are refundable. This means that if the amount of your earned income credit exceeds your federal income tax liability you are refunded the rest. Most other credits simply reduce your tax to zero. 

To qualify for this credit, you have to meet certain criteria. The main variables for calculating your earned income credit are your income and the number of children that you have. You can still receive this credit if you do not have any children, but the threshold for how much income you received is lower. 

The following criteria will disqualify you from receiving the earned income credit:

  • Filing your tax return as married filing separately
  • Have interest income of more than $2,900
  • Must be a United States citizen and have a valid social security number
  • You did not have earned income from either self-employment or from an employer

If you have no qualifying children for EIC, then the following rules also apply:

  • You cannot be over the age of 65 at the end of the tax year
  • You cannot be under the age of 25 at the end of the tax year
  • You must not be claimable as a dependent on someone else's tax return
  • You cannot have lived in the United States for less than 6 months and 1 day

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Filing Status

The filing status you select while preparing your income tax return is one of the most vital pieces of information that you give. It factors heavily into the following items: 

Whether or not you need to file a return: To determine whether you need to file a return you must first know for certain what your filing status is. There are income levels that change each year that show whether you need to file a tax return or not. Those limits vary based on your filing status. 

Your standard deduction: The first item affected by filing status is the amount of your standard deduction. The standard deduction is an amount of money that you are allowed to subtract from your adjusted gross income. The less income you have, the less you owe the IRS in taxes. Taxpayers that are married filing jointly or a qualifying widow(er) enjoy the biggest standard deduction. The second largest deduction goes to someone filing head of household. The smallest deduction is given to those who file single or married filing separately. Standard deduction is not a factor for those who itemize their deductions. 

Amount of taxes you owe: As mentioned above, after you determine the amount of income you have for the year, you are allowed to subtract either a standard or itemized deduction from that amount. You then look up the resulting value in one of the IRS's tax tables to find the amount in taxes you are responsible for in that year. This table is categorized by filing status. Like the standard deduction, the tax table favors those who are married filing jointly or filing as a qualifying widow(er) by giving lower tax amounts owed than those who file single, head of household, or married filing separately. 

These are the five filing status available to you for filing your federal tax return:

  • Single - to qualify as single you must be legally separated or unmarried
  • Married Filing Jointly - you must be married for you and your spouse to file a joint return. If your spouse passed away during the previous year you can still file a married filing jointly return provided that you did not remarry in the same year
  • Married Filing Separately - you may also elect to file separate returns when you are married
  • Head of Household - you must not be married and you must have covered more than half of household cost for you and a qualifying dependent
  • Qualifying Widow(er) - if your spouse died within the last two years, and you have a qualifying dependent child, you may be able to file as this status

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Qualifying Child

The IRS has a set of tests for determining whether a child is a qualifying child to be a dependent. Please note that the test is different to determine if someone is a qualifying relative. Having a qualifying child as a dependent can make a significant impact on the calculation of your tax return. 

The tests for determining if someone is a qualifying child are as follows:

  • Age Test
  • Relationship Test
  • Support Test
  • Residence Test

Age Test: This test deals with the age of the dependent. If the child is any age and is totally and permanently disabled then they pass the age test. If the child is under the age of 19 years old at the end of the tax year in question then the child will pass the age test. If you have a child over 24 at the end of the tax year than that child does not qualify under any circumstances. If you have a child that is older than 19 but younger than 24 and was a full-time student for at least 5 months out of the year, then the child would pass the age test. 

Relationship Test: To pass the relationship test, the child must be related to you in one of the following ways:

  • Daughter
  • Son
  • Step Daughter
  • Step Son
  • Foster Child
  • Sister
  • Brother
  • Adopted Child
  • Grandchild
  • Nephew
  • Niece

Support Test: The child did not provide over half of their support during the tax year. This does not necessarily mean that the parent has to provide over the half the support in the situation of charity, gifts, or public assistance. 

Residence: The child must have lived with you for more than 6 months during the tax year.

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Qualifying Relative

In order to be considered a qualifying relative there are six requirements that ALL must be met. They are:

  • Not a qualifying child -- The dependent must not be a qualifying child for another taxpayer.
  • Gross Income -- The dependent has to earn less than the personal exemption amount during the tax paying year.
  • Total Support -- The tax payer claiming the dependent has to provide more than half of the total support for the dependent.
  • Relationship -- You have to be related to the dependent in certain ways:
    • Child, grandchild, great-grandchild, step-child, or adopted child
    • Brother or sister
    • Half-brother or sister
    • Step-brother or sister
    • Parent, grandparent, or great-grandparent
    • Step-parent
    • Nephew or niece
    • Uncle or aunt
    • Son, daughter, brother, sister, father, or mother-in-law
    • Or a foster child who has been placed in your custody by court order or an authorized government agency.
    • A dependent who qualifies as any of the above does not need to live with the taxpayer as long as you meet the gross income, support, citizenship, and joint return tests. Relationships that are established by marriage also do not end if spouse dies or divorces. For example, if you are still taking care of or supporting your in-laws after your spouse dies or divorces you, you can claim them as your dependent.
  • Joint Return -- If the dependent is married, they cannot file a joint return with their spouse.
  • Citizenship -- The dependent must be a citizen or resident alien of the U.S., Canada, or Mexico.

In order to pass the relationship test, the dependent must be one of the above mentioned OR the dependent must have lived with the taxpayer for the entire year without violating any local laws concerning the relationship.

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Qualify as a Dependent

There are several pieces of information to consider when determining if you can claim a dependent or not. If your child qualifies to be claimed as a dependent, they must pass these four rules first. They are:

  • The relationship test - the child must be your biological child, step child, adopted child, foster child, brother or sister, or a descendant of one of these (for example: niece or nephew, or grandson or granddaughter).
  • The residence test - this means that the child must have the same residence as you do for more than half of the year.
  • The age test:
    • the child must be under the age of 19 at the end of the year
    • the child must be under the age of 24, BUT has to be a full-time student for at least 5 months out of the year
    • the child can be any age, BUT must be totally and permanently disabled
  • The support test - the child must have not provided more than half of their own support for the year. This can include things like family assistance, charity gifts, and monetary assistance from family members to claim the dependent.

If the child doesn't meet any of these criteria to be claimed as a dependent, they may qualify to be claimed as a relative, BUT you need to make sure that nobody else can claim them as a dependent first. 

Also, if you share joint custody with another person for this child and the child spends equal amount of time at both places, only one person can claim the child and that would be the person with the higher amount of annual income. The non-qualifying parent can claim the child only if the qualifying parent releases their claim to the dependency exemption using form 8332.

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