If you have children, make sure you’re not missing out on any available tax credits! The United States federal tax law allows you to claim refundable credits on your tax return for qualifying children, which can lead to some pretty significant savings. Based on the amount of qualifying dependents you claim on your tax return, the IRS might require you to fill out Form 8812. IRS Form 8812 will need to be filed alongside your 1040, 1040A or 1040NR at the time of your tax return, and can’t be requested later in the tax year. Before you miss out on what could be some well-deserved savings, read up on the rules regarding Schedule 8812 to learn if you qualify and how you can claim the child tax credit.
What is Form 8812?
In the United States, taxpayers are able to claim a tax credit of up to $1,000 per year for qualifying dependent children as of 2017. In order for the child to qualify, the following must be true:
- They must be a U.S. citizen, national, or resident
- They must under the age of 17 by the end of the calendar tax year
- They must live with you for more than half the year
- They must receive over half of their support from you
You can claim a tax credit for each child, stepchild, adopted child, or grandchild who fits this definition. The amount of credit owed to you will vary based on your income level, but if your total credit amount exceeds the amount of tax that you owe, the IRS requires you to file Form 8812. The Schedule 8812 Form is found on Form 1040, and it’s used to calculate an alternative refundable credit known as “the additional child tax credit”. For example, if the amount you owe in taxes is either zero or less than the credit, you cannot claim the full child tax credit of $1,000. You might be able to qualify for the reduced additional child tax credit, however, by filling out IRS Form 8812.
What are the Benefits of Child Tax Credits?
Always file your tax return and accompanying Schedule 8812—even if you don’t owe any taxes. A tax credit reduces your annual bill dollar-for-dollar and with enough qualifying credits, you could lower your tax bill so much that the government actually owes you money, resulting in a tax refund. Depending on how you request your refund, your money can be returned to you in the form of a mailed check or direct deposit into your bank account.
The Stimulus Act of 2009 made it much easier to qualify for the additional child tax credit by lowering the earned income threshold. As a result, many taxpayers with modest income stand to benefit from larger returns.
Do I Qualify for Child Tax Credit on Form 8812?
The terms and conditions of Schedule 8812 stipulate that you must have earned income if you’re planning on claiming the additional tax credit. When reading the instructions for Form 8812, you’ll find that you need to report the amount of your gross income earned from wages and other job-related compensation in order to calculate the amount of your alternative credit.
The formula to calculate your credit amount is complex, and will be reduced if your gross income exceeds the threshold of your filing status. If you have one or more qualifying children and earn an income of at least $3,000, you may be eligible for a refund of up to 15% for any income in excess of $3,000. If your earned income is under $3,000 dollars, you might be entitled to a refunded credit if:
- You have three or more qualifying dependents
- You paid Social Security taxes which exceeded your earned income credit
Be sure to check the withholding amount submitted on your Form W-4 before filling out Form 8812. If you didn’t withhold enough money for taxes on your paychecks, you might owe the IRS money and will not be able to receive a refunded amount. As always, it’s best to consult a tax professional to see whether or not you qualify for the additional child tax credit or any other deductions that might be available to you.
Can I File Schedule 8812 if I’m Divorced?
In instances of divorce or separation, only one taxpayer can claim the child credit on Schedule 8812. Usually the parent with primary custody is awarded the credit, however IRS Publication 596 states that a noncustodial parent can claim a child as dependent if the following are true:
- The parents are divorced or legally separated
- Lived apart at all times for the past 6 months, whether or not they were married
- The child received over half of their support from the parents and/or lived with one or both parents for over half the year
To receive the credit, the noncustodial parent must receive a signed Form 8812 from the custodian stating that he or she will not claim the dependent on their tax return. They will then submit that documentation alongside their own Form 1040 to the IRS.
Note: Taxpayer identification numbers are needed by the due date of your return. If you do not have a Social Security number (SSN) or an Individual Taxpayer Identification Number (ITIN) issued by the IRS at the time your return is due, you cannot claim the child tax credit—even if you get a SSN or ITIN later on.
Form 8812 Instructions
The instructions for IRS Form 8812 are broken up into four parts. You only need to complete Part I if you are claiming credit for a child identified by an ITIN. This child must be a citizen, national or resident of the United States and pass the substantial presence test to qualify for credit. Take the following steps to complete Lines A-D:
- Complete Line A for the first dependent using an ITIN on your Form 1040, Form 1040A or Form 1040NR.
- Check the box in Column 4 indicating that they pass the substantial resident test and are not otherwise treated as a nonresident alien.
- Use a separate line for each additional child with an ITIN for whom you checked the box.
Parts II-IV are used to help determine the amount of additional child tax credit owed to you. Use the following Form 8812 instructions:
- Refer to the Earned Income Chart and enter the amount on line 4a.
- Use the line 7 worksheet to determine whether you paid Additional Medicare Tax.
- Complete line 10 if you or your spouse are filing jointly and paid an excessive amount in taxes.
The IRS states that if you claimed the additional child tax credit on your return, but were later found ineligible due to reckless or blatant disregard for the rules, you will not be able to claim the credit for two years. It’s therefore incredibly important to enlist the help of a tax professional to prevent improper claims and ensure you get the money that’s owed to you. We’ve helped thousands of clients for all their tax related needs—from preparation to resolution—and look forward to helping you, too. Contact us today for assistance with the IRS and learn what we have to offer.