Q&A: 2006 Child Tax Credit

Update: Here’s info on the 2007 Child Tax Credit.

We’ve been getting a decent number of search hits for information on the 2006 Child Tax Credit. I’ve written about the Child Tax Credit in the past, but seeing as Tax Day is sneaking up on us, I thought I’d put together a fresh article with details based on current IRS guidance.

In short, the Child Tax Credit the federal income tax that you owe by up to $1,000 for each qualifying child under the age of 17. In other words, it’s not a deduction (which reduces your taxable income and thus reduces your taxes fractionally). Rather, it’s a a credit that gets deducted straight off your tax bill.

According to the IRS, a qualifying child is a child who:

1. Is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them (for example, your grandchild),

2. Was under age 17 at the end of 2006,

3. Did not provide over half of his or her own support for 2006,

4. Lived with you for more than half of 2006 (see Exceptions to time lived with you below),

and

5. Was a U.S. citizen, a U.S. national, or a resident of the United States.

Furthermore:

A child is considered to have lived with you for all of 2006 if the child was born or died in 2006 and your home was this child’s home for the entire time he or she was alive. Temporary absences for special circumstances, such as for school, vacation, medical care, military service, or detention in a juvenile facility, count as time lived with you.

The maximum credit that you can claim is $1,000 per qualifying child. However, this amount is reduced if your tax liability is less than the credit. In the extreme, if you have no tax liability, then no credit can be claimed.

The other thing to keep in mind that the Child Tax Credit is subject to modified adjusted gross income (MAGI) limits. More specifically, the Child Tax Credit is phased out for filers above the following MAGI thresholds:

Married filing jointly: $110,000
Single, head of household, or qualifying widow(er): $75,000
Married filing separately: $55,000

For every $1,000 over the threshold, your credit is reduced by $50. For more details on the 2006 Child Tax Credit, see IRS Publication 972.

This article is part of our Parenting Q&A series.