What are the basic guidelines for the child credit?

March 21, 1999

Subject:  $400 dollar credit
Date:  Mon, 15 Mar 1999
From:  "Sale"

Can you tell me what the basic guidelines are to receive the $400 per child credit?

Answer

Date:  Sun, 21 Mar 1999

I normally would not deal with the $400 child credit, because it doesn't apply to most of the people I deal with.

However, the IRS has announced that the most-frequent error on income federal individual income tax returns for this year is the failure to claim this credit.

The IRS is actually increasing refunds to taxpayers by computing what the credit should be and reducing the reported tax by this amount.

Would you folks please read the instructions provided with your tax forms? See 1040 instructions, page 31 and 1040A instructions, page 32.

You may not claim the credit on Form 1040EZ.

As a public service...

The child credit for 1998 is $400. It will increase to $500 for 1999.

The credit is reduced (to no less than zero) by $50 for each $1,000 or fraction by which the taxpayer's "modified adjusted gross income" exceeds certain "threshold amounts". The threshold amounts are $110,000 for a joint return, $75,000 for singles, and $55,000 for a married person filing a separate return. When the credit is phased out will depend on the number of qualifying dependent children the taxpayer claims.

Modified adjusted gross income is your adjusted gross income (Form 1040, line 34 or Form 1040A, line 18) plus excluded income from Guam, American Samoa, the Northern Mariana Islands and Puerto Rico, and plus excluded foreign earned income and housing costs (Form 2555, line 43 and 48; Form 2555-EZ line 18; and Form 4563, line 15.)

The credit is non-refundable, and is generally limited to the regular federal income tax over the tentative minimum tax, determined without regard to the foreign tax credit. Certain taxpayers with three or more children may qualify for a refundable credit amount.

For 1998, you receive one $400 credit for each qualifying child. A qualifying child is a child who is claimed as your dependent on your income tax return; was under age 17 at the end of 1998; is your son, daughter, adopted child, stepchild, or foster child; and is a U.S. citizen or resident alien. A child is considered an adopted child if placed with you by an authorized placement agency for legal adoption, even if the adoption isn't final. A foster child is any child you cared for as your own and who lived with you for all of 1998. (If the child was born or died during 1998, the child qualifies providing your home was the child's home for the time the child was living.

Taxpayers with three or more children may be eligible for an additional child tax credit, which is reported using Form 8812. This additional credit enables certain low-income families recover part of their social security tax withholding.

When you have more than two qualifying children, there is an interplay between the earned income credit, the alternative minimum tax and the child credit that I choose not to elaborate on. Use Form 8812 for the computations.

The worksheets in the IRS instructions are very helpful. You can get them at your local post office or on the IRS web site.

When Congress enacted this credit, I knew that it was going to be too complex for the people it applies to. In many cases the taxpayer needs professional help to compute it but can't afford the fees.

Good luck!
Mike Gray

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