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The U.S. Department of Agriculture estimates that it costs nearly $15,000.00 a year for a middle-
class family to raise a child born in 2002 to age 17 (without adjustment for inflation). In recognition
of this cots, you can claim a tax credit each year until your child reaches the ago of 17. The credit
is currently up to $1,000.00 per child. This credit is in addition to the dependency exemption for
the child.
You may claim a tax credit of up to $1,000.00 in 2004 for each child under the age of 17. If the
credit you are entitled to claim is more than your tax liability, you may be entitled to a refund under
certain conditions.
Generally, the credit is refundable to the extent of 10 percent of earned income over $10,750.00 in
2004.
Conditions:
To claim the credit, you must meet two conditions.
1. You must have a qualifying child.
2. Your income must be below a set amount.
QUALIFYING CHILD.
You can claim the credit only for a "Qualifying Child." This is a child who is under age 17 at the
end of the year and whom you claim as a dependent.
The child need not be your own child - he or she can be a stepchild, grandchild, great-grandchild,
sibling, stepbrother, stepsister, or a descendant of any of these.
For example, if you support your 16 year old sister and claim her as a dependent on your return,
she is a qualifying child. An adopted child is a qualifying child as long as the child has been
placed with you by an authorized agency for legal adoption, even if the adoption is not yet final.
MAGI LIMIT.
You must have modified adjusted gross income (MAGI) below a set amount. The credit you are
otherwise entitled to claim is reduced or eliminated if your MAGI exceeds a set amount. MAGI for
purposes of the child tax credit means AGI increased by the foreign earned income exclusion, the
foreign housing exclusion or deduction, or the possessions exclusion for American Samoa

2. residents.
The credit amount is reduced by $50.00 for each $1,000.00 of MAGI or a fraction thereof over the
MAGI limit for your filing status. The phaseout begins if MAGI exceeds the following limits:
1.Married filing jointly $110,000.00
2.Head of household$75,000.00
3.Unmarried (single)$75,000.00
4.Qualifying widow(er) $75,000.00
5.Married filing separately$55,000.00
Example: In 2004 you are a head of household with two qualifying children. Your MAGI is
$90,000.00. Your credit amount of $2,000 ($1,000 x 2) is reduced by $750 ($90,000 - $75,000 =
$15,000 MAGI over the limit) = 15 x 50 = $750. Your credit is $1,250.00 ($2,000 - $750).
HOW TO CLAIM THE CREDIT AND GET A BIGGER REFUND.
If the credit you are entitled to claim is more than your tax liability, you can receive the excess
amount as a "refund." The refund is limited to 10 percent of your taxable earned income (such as
wages, salary, tips, commissions, bonuses, and net earnings from self-employment) over $10,750
in 2004. If your earned income is not over $10,750, you may still qualify for the additional credit if
you have three or more children.
If you have three or more children for whom you are claiming the credit, you may qualify for a
larger refund, called the additional child tax credit.
QUICK TIP.
If you know you will become entitled to claim the credit (e.g. you are expecting the birth of a child
in 2004), you may wish to adjust your withholding so that you don't have too much income tax
withheld from your paycheck. Increase your withholding allowances so that less income tax is
withheld from your pay by filing a new from W-4, Employee's withholding allowance certificate,
with your employer.
The child tax credit is scheduled to decline to $700 per child in 2005 and then increase to $800 in
2009, and $1,000 in 2010 and later years.
You figure the credit on a worksheet included in the instruction for your return. You claim the
credit in the "Tax and Credits" section of Form 1040 or the "Tax, Credits, and Payments" section
of form 1040A; you cannot claim the credit if you file form 1040EZ
If you are eligible for the additional child tax credit, you figure this on Form 8812, Additional Child
Tax Credit.
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Article Source:
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