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If you have children, you know what a blessing they can be, especially during tax time. If you have dependent children, you may be able to claim a child tax credit that is set at $1,000 per qualifying child for tax years
2005 through 2010.
A qualifying child must remain under age 17 through the end of the year and be either a U.S. citizen or resident alien. A qualifying child must also meet the dependency tests, and be your natural or adopted child, grandchild or great-grandchild, stepchild, or a foster child. "Adopted child" includes a child placed with you for adoption even if the adoption has not been finalized. A foster child must have lived with you the entire year to qualify, unless the child was born or died during the year.
Like most of the tax credits and other breaks that have been enacted lately, there is an income limitation on the people who can claim this credit. The phaseout of the credit begins at modified adjusted gross income (AGI) of $110,000 for joint filers, $75,000 for singles and heads of household, and $55,000 for marrieds filing separately. You will lose $50 of your total child credit for each $1,000 (or fraction of $1,000) of your modified AGI that exceeds the applicable threshold. For this purpose, modified AGI includes the amount shown on Line 37 of Form 1040 or Line 21 of Form 1040A, plus any foreign earned income exclusion, foreign housing exclusion, and income from U.S. possessions, if any.
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Example
Stephen Cooper and his wife Sally have three children, which would qualify them for a child tax credit of $3,000 in 2007. Their modified AGI is $119,500, which exceeds the threshold of $110,000 by $9,500. Therefore, they will lose $50 x 10 = $500 of their credit, leaving a remaining credit of $2,500.
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For more information, see our discussion of how to claim the credit.
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