Eligibility and Income Restrictions
In order for a tax filer to get the credit, he or she must show that the child lived with the person or family for at least half of the year, that the child didn't provide more than half of his or her own monetary support during this time and that the child didn't file a joint tax return for the same year. The child also has to be a U.S. citizen, national or resident alien. The credit extends to families that care for children other than their direct offspring, such as brothers, sisters, grandkids, foster children, step children, nieces and nephews [source: IRS].
The tax credit also comes with an income component. It's designed to help working-class families first and foremost, and therefore provides less of a tax break to those whom lawmakers and policy wonks have determined are less in need or who don't earn enough. In tax year 2013, a tax filer had to make at least $3,000 over the year to get some of the credit and at least $16,330 to get the full credit. Meanwhile, the credit began to phase out at a modified adjusted gross income (MAGI) of $75,000 for single tax filers and at $110,000 for joint filers. The credit was reduced by $50 for every $1,000 earned above this threshold [sources: Center on Budget and Policy Priorities, Ernst &Young]. Your MAGI is your gross income with certain deductions subtracted and others added.
Income additionally comes into play when determining how much of the credit is refundable. A tax filer who claims the credit, but doesn't owe the government at the end of the year – or simply owes less than the value of the credit – can get at least some of it back under what's called the Additional Child Tax Credit. The available refund is 15 percent of any taxable earnings over $3,000 and maxes out at the total amount of the credit [sources: Center on Budget and Policy Priorities, Ernst &Young].