History

• U.S. Rep. John R. Kasich, from Ohio's 12th District, introduced a bill into the House of Representatives on June 24, 1997, that was signed into law by President Bill Clinton on Aug. 5, 1997. Public Law Number 105-34, known by its title, the Taxpayer Relief Act of 1997, included a provision that amended Internal Revenue Code to allow a tax credit for parents and guardians of qualifying children beginning in tax year 1998. The initial credit for tax year 1998 was set at $500 per qualifying child with income limitations. Provisions since have been enacted to raise the credit. For example, a $1,000 credit per qualifying child was allowed for the 2010 tax year.
  
  

Identification

• For purposes of claiming the child tax credit, the IRS defines a qualifying child by several criteria, one of which is relationship to the taxpayer. The qualifying child must be the natural child, adopted child, stepchild, foster child or grandchild of the taxpayer. Minor siblings, nieces and nephews also qualify if the taxpayer provides more than half of the financial support for the minor child and claims the child as a dependent on federal tax returns.
  
  

Features

• Income limits for claiming the child tax credit are based on federal tax filing status. Each tax year, the IRS will list the modified adjusted gross income ceiling for taxpayers married filing jointly, married filing separately and for all others. To check qualification status, the taxpayer has only to review the child tax credit worksheet that is included as part of the standard tax Form 1040 package each year.
  
  

Function

• Tax credits directly reduce tax liability, as opposed to tax deductions, which generally reduce the amount of taxable income prior to calculating tax liability. The child tax credit, as indicated by its name, directly reduces the tax burden for qualifying taxpayers. Aimed at working families, the credit functions to subsidize part of the everyday expenses of childcare by providing tax rebates. The credit increases with each additional qualifying child.
  
  

Considerations

• The child tax credit does not provide a federal tax refund in instances where one was not otherwise due. For example, the earned income credit may be used by U.S. taxpayers to acquire a federal refund where no or minimal taxes were paid during the year. The child tax credit will rebate only taxes withheld from wages and salary but does not produce an additional refund.