The Child Credit was first introduced in 1998, when taxpayers were allowed to claim a $400 tax credit for their qualified children who were under the age of 17 at the end of the tax year. Per prior tax law changes, the child credit has increased to $1,000, and the $1,000 credit was made permanent by the American Taxpayer Relief Act of 2012.
A qualifying child for purposes of the child tax credit is a child who:
- Is the taxpayer's son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them (for example, a grandchild),
- Was under age 17 at the end of the tax year,
- Did not provide over half of his or her own support for the tax year,
- Lived with the taxpayer for more than half of the tax year,
- Was a U.S. citizen, a U.S. national, or a resident of the United States, and
- Was claimed as the taxpayer's dependent.
Exceptions to "time lived with the taxpayer" condition - A child is considered to have lived with the taxpayer for all of the tax year if the child was born or died during the year and the taxpayer's 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 business, also count as time lived with the taxpayer. There are also special rules for kidnapped and missing children.
Children of divorced or separated parents – Only one parent can claim the child tax credit with respect to a qualifying child, and that would be the parent who claims the child's dependency exemption. Most often this is the custodial parent unless the custodial parent has waived the dependency exemption to the noncustodial parent.
Credit phased out for higher income taxpayers - The credit is reduced by $50 for each $1,000 (or fraction of $1,000) of modified AGI over the following thresholds.
- $110,000 for taxpayer filing married joint;
- $55,000 for those filing married separate;
- $75,000 for all others.
Modified AGI is AGI increased by amounts excluded from gross income under Code Sections 911, 931, or 933 (foreign income exclusions).