Child Tax Credit (CTC)

The Child Tax Credit (CTC) is a federal tax credit, worth up to $600 per child in 2001, for families with dependent children under age 17. Even though the CTC has been available since 1998, recent changes make it larger and available to more people than before. The CTC is now refundable, which means that it will pay off whatever taxes you do owe, and you get the remainder in the form of a refund check. You can get it even if you don't owe any taxes at all!

To be eligible for the Child Tax Credit, a single or married worker must:

• Be able to claim an exemption for a dependent child under age 17
• Have a taxable earned income above $10,000
• Have either a SSN or a tax ID number.

You can get both the EIC and the CTC. It's possible that you might qualify for the CTC, but not the EIC. For example, a non-custodial father who can claim his child as a dependent can get the CTC, but not the EIC, because his child doesn't live with him.

To get the CTC, you have to file a 1040 or 1040A, but not the 1040EZ. The instructions will help you figure out your CTC, which will first be applied to any tax you owe. If you have some CTC left over, you file Form 8812 to receive the refund.

Eligible families can get up to $600 for each dependent under 17. If you have less tax liability than your CTC, then you get something back, but not necessarily the entire remainder of the credit. You would get the lesser of (1) the remainder of the CTC or (2) 10% of the family's earned income over $10,000. For example, if a family earns $15,000, ten percent of its income above $10k is $500.

Confused yet? Well, if you have three or more children, it gets even stickier. Under the old 1998 rules, a family with 3+ kids who owe a little or no income tax but paid more in social security payroll taxes than they got in EIC sometimes got a bigger boost from the CTC than they would under the new rules. These families have the option of going with the new or old rules, whichever works best financially for them. This can all be handled on that magic Form 8812!

The CTC does not count as income when determining eligibility for any federal, state or local program benefits. CTC refunds do not count against resource limits in these programs in the month of receipt or the following month.

You might want to take a look at a comparison between the EIC and the CTC to get a better idea of how each affects your situation.

EIC-CTC Comparison handout

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