| The U.S. Department of Agriculture estimates that it | | | | 1. Married filing jointly $110,000.00 |
| costs nearly $15,000.00 a year for a middle-class | | | | 2. Head of household $75,000.00 |
| family to raise a child born in 2002 to age 17 (without | | | | 3. Unmarried (single) $75,000.00 |
| adjustment for inflation). In recognition of this cots, | | | | 4. Qualifying widow(er) $75,000.00 |
| you can claim a tax credit each year until your child | | | | 5. Married filing separately $55,000.00 |
| reaches the ago of 17. The credit is currently up to | | | | Example: In 2004 you are a head of household with |
| $1,000.00 per child. This credit is in addition to the | | | | two qualifying children. Your MAGI is $90,000.00. Your |
| dependency exemption for the child. | | | | credit amount of $2,000 ($1,000 x 2) is reduced by |
| You may claim a tax credit of up to $1,000.00 in | | | | $750 ($90,000 - $75,000 = $15,000 MAGI over the |
| 2004 for each child under the age of 17. If the credit | | | | limit) = 15 x 50 = $750. Your credit is $1,250.00 |
| you are entitled to claim is more than your tax | | | | ($2,000 - $750). |
| liability, you may be entitled to a refund under certain | | | | HOW TO CLAIM THE CREDIT AND GET A BIGGER |
| conditions. | | | | REFUND. |
| Generally, the credit is refundable to the extent of 10 | | | | If the credit you are entitled to claim is more than |
| percent of earned income over $10,750.00 in 2004. | | | | your tax liability, you can receive the excess amount |
| Conditions: | | | | as a "refund." The refund is limited to 10 percent of |
| To claim the credit, you must meet two conditions. | | | | your taxable earned income (such as wages, salary, |
| 1. You must have a qualifying child. | | | | tips, commissions, bonuses, and net earnings from |
| 2. Your income must be below a set amount. | | | | self-employment) over $10,750 in 2004. If your |
| QUALIFYING CHILD. | | | | earned income is not over $10,750, you may still |
| You can claim the credit only for a "Qualifying Child." | | | | qualify for the additional credit if you have three or |
| This is a child who is under age 17 at the end of the | | | | more children. |
| year and whom you claim as a dependent. | | | | If you have three or more children for whom you |
| The child need not be your own child - he or she can | | | | are claiming the credit, you may qualify for a larger |
| be a stepchild, grandchild, great-grandchild, sibling, | | | | refund, called the additional child tax credit. |
| stepbrother, stepsister, or a descendant of any of | | | | QUICK TIP. |
| these. | | | | If you know you will become entitled to claim the |
| For example, if you support your 16 year old sister | | | | credit (e.g. you are expecting the birth of a child in |
| and claim her as a dependent on your return, she is a | | | | 2004), you may wish to adjust your withholding so |
| qualifying child. An adopted child is a qualifying child as | | | | that you don't have too much income tax withheld |
| long as the child has been placed with you by an | | | | from your paycheck. Increase your withholding |
| authorized agency for legal adoption, even if the | | | | allowances so that less income tax is withheld from |
| adoption is not yet final. | | | | your pay by filing a new from W-4, Employee's |
| MAGI LIMIT. | | | | withholding allowance certificate, with your employer. |
| You must have modified adjusted gross income | | | | The child tax credit is scheduled to decline to $700 |
| (MAGI) below a set amount. The credit you are | | | | per child in 2005 and then increase to $800 in 2009, |
| otherwise entitled to claim is reduced or eliminated if | | | | and $1,000 in 2010 and later years. |
| your MAGI exceeds a set amount. MAGI for | | | | You figure the credit on a worksheet included in the |
| purposes of the child tax credit means AGI increased | | | | instruction for your return. You claim the credit in the |
| by the foreign earned income exclusion, the foreign | | | | "Tax and Credits" section of Form 1040 or the "Tax, |
| housing exclusion or deduction, or the possessions | | | | Credits, and Payments" section of form 1040A; you |
| exclusion for American Samoa residents. | | | | cannot claim the credit if you file form 1040EZ |
| The credit amount is reduced by $50.00 for each | | | | If you are eligible for the additional child tax credit, |
| $1,000.00 of MAGI or a fraction thereof over the | | | | you figure this on Form 8812, Additional Child Tax |
| MAGI limit for your filing status. The phaseout begins | | | | Credit. |
| if MAGI exceeds the following limits: | | | | |