I was filling out a W-4 form at work the other day—seeing as we have another tax deduction now—and I noticed a section entitled Child Tax Credit. Apparently, we fall within the criteria which would nearly double the number of exemptions for which we qualify.
However, I did not take the extra exemptions because I was afraid of taking too many. So what’s the deal? What is this Child Tax Credit?
Are there any tax professionals in the audience who can explain it in layman’s terms? Of course, I would abide by the proviso that it would be purely for information purposes only, that I would not hold you liable for subsequent actions I take, and that I will consult a tax professional in my pay before taking any action. Just to satisfy the lawyers, like.
That said, can someone translate?
Hi, Dom.
I sent an e-mail with a general explanation of the child tax credit; to determine your eligibility for the credit, see the 1040 instruction book’s info for line 6c (p. 15) and line 52 (p. 40). You can download the instructions from irs.gov.
Dom,
I am a practicing tax pro w/ that company w/ the green square logo. (Didn’t know if you would appreciate the shameless plug.)
The child tax credit is a $1000 credit against taxes owed that is available to most filers w/ qualifying children. The child must be your dependent and the credit terminates the year the child turns 17. If your income is such that your tax liability is less than $1000 (say $650) the credit is limited to the amount of the liability. You may, however, qualify to recieve the unused portion of the credit as an “Additional Tax Credit.” That is a refundable credit available to some lower income tax payers.
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Your safest reasonable W4 would be married 4, though you could go as high as married 8 (Melanie doesn’t have wage income, correct?)
DGS
I use Turbotax. You just plug in the information; it figures out your eligibility for you.
We ended up with a huge tax check last year, because we made less than $38K in 2006 & had 3 kids, so we got both Bush’s $1000 credit for just having a kid, *and* the “Earned Income Credit” for making less than $38K, so we got $2000 a kid.
Hi Dom, You should also look at the tax return you did last year, too. Assuming that you did not know about this credit at that time, your first child may have qualified for the Child Tax Credit for tax year 2006. If so, you can file an amended return for 2006 and hopefully get another nice fat check from Uncle Sam. If you have any questions about how to do that, just shoot me an email. Michael CollinsAMDG Tax Service“Give to Caeser what belongs to Caeser… but not a penny more.”vice
Always take as many exemptions as possible (9?).
If you owe the government money, fine. If you are due a refund, you have given the gov’t an interest free loan through withholding taxes. You have to pay what you have to pay at the end of the year, so would you rather have that money in an interest-bearing account, or sitting interest-free with the government?
Mike, That’s the trick. As many as you’re “allowed”. It’s not just a matter of whether you get a refund. If you take too many exemptions, beyond what you’re due, then you can actually suffer penalties.
Trust me, I already subscribe to the idea that I don’t want to make free loans to the government.