We did our taxes a couple of weeks ago and, once again, we ended up paying an astonishingly small amount… When all was said and done, we paid just 3.7% in net federal taxes (that’s our net tax divided by our adjusted gross income). While we had a number of deductions (mortgage interest, flexible spending account, retirement contributions, charitable contributions, etc.), it was the Child Tax Credit that had the single biggest impact on our bottom line.
For those of you that aren’t familiar with it, the Child Tax Credit reduces the federal income tax that you owe by up to $1,000 for each qualifying child under the age of 17. That’s right… It’s not a deduction. Rather, it’s a credit that gets substracted straight off your tax bill. This means that our tax bill was cut by $4,000 this year due to the Child Tax Credit alone, not to mention the additional exemptions afforded by having kids.
So what’s a “qualifying child”? According to the IRS, a qualifying child is defined as someone who meets the following criteria:
— Is claimed as your dependent
— Is your son, daughter, adopted child, stepchild/eligible foster child, sibling, stepsibling or any descendant of the above
— Was under age 17 at the end of 2005
— Is a U.S. citizen or resident alien
Beyond this, the Child Tax Credit is phased out for filers above the following AGI thresholds:
Married filing jointly: $110,000
Married filing separately: $55,000
All others: $75,000
While this is a great deal for those of us with kids, I’m not all that crazy about the government essentially paying people to have children. Yeah, I know… It’s a tax break, not a payment, but still… That being said, we’ll continue taking advantage of it as long as it’s on the books.
If you’re interested in learning more, be sure to check out IRS Publication 972.