H & R Block: What parents need to know about filing taxes

What Parents Need to Know for Filing Their Taxes

The IRS calls your little bundle of joy a dependent, and with good reason. Even before that baby arrives, you should be aware of how Uncle Sam will be her uncle as well. There will be some nice tax benefits in the years to come. Before that can happen, your new baby will need to have a Social Security number assigned. The good news is that most hospitals have the paperwork all ready for you, and a few days after you bring baby home, their social security card will arrive. Don’t worry, you’re not already planning for their retirement; you need this number to enter on your tax return, to claim your new dependent.

The child tax credit is worth up to $1,000 for each qualifying child. This credit can be both a nonrefundable and a refundable credit. The refundable portion of the child tax credit is called the additional child tax credit

To qualify for the child tax credit, both of these must apply:

• The qualifying child must be under age 17 at the end of the year.
• The qualifying child must be one of these:
  • U.S. citizen
  • U.S. national
  • U.S. resident

Divorced and separated parents

The parent who claims the child as a dependent is eligible to claim the child tax credit. This is true even if the parent’s filing status is married filing separately.

Income phase-out

As your modified adjusted gross income (AGI) increases, the child tax credit begins to phase out. The credit is reduced $50 for every $1,000 — or portion of $1,000 — that your modified AGI is more than:

• $75,000 if filing as single, head of household, or qualifying widow(er)
• $110,000 if married filing jointly
• $55,000 if married filing separately

For the purpose of this credit, your modified AGI is your AGI plus foreign earned income, if any.

Co-owners (left to right) Terri Page and Pat Wilson, have more than 50 years combined experience to help you with your tax preparation needs.

Interaction with other credits

You can’t carry forward any portion of the child tax credit to future years. You need to claim the nonrefundable credits in a certain order to get the most benefit. You might need to calculate other credits first to properly apply the child tax credit.

Additional child tax credit

If your child tax credit is limited, you might be able to claim the additional child tax credit. To qualify for the additional child tax credit, one of these must apply:

• Your earned income must be more than $3,000 for 2013.
• You must have three or more qualifying children.

If you have at least one qualifying child, you can claim a credit of up to 15% of the amount your earned income is more than $3,000. If you have three or more qualifying children, you can either:

• Claim a refundable credit if the net Social Security and Medicare tax you paid is more than your Earned Income Credit (EIC), if any
• Use the 15% method described earlier

In all cases, the credit is:

• Limited to $1,000 per qualifying child
• Reduced by the nonrefundable portion of the child tax credit