The child tax credit grants you an actual tax reduction, instead of a deduction from your taxable income. That makes a big difference, based on which tax bracket you fall under. The maximum amount you can claim for each qualifying child is $1000 at present, valid until 2010. A qualifying child, as per the IRS, is defined as your son or daughter, stepchild, foster child, brother, stepbrother, stepsister, or a descendant of any of them (for example, your grandchild) who is aged 17 or under, unable to provide for more than 50% of his or her own support, has lived with you for more than half of the tax year and is a U.S. citizen, resident or national. These eligibility requirements are also met by adopted children.
You will need to calculate your taxable earned income, and reduce the amount of child credit you can claim, if your tax liability is less than the claimable child credit. However, if so, you may be eligible for the additional child tax credit, and be able to get a refund even if you do not owe any taxes. The credit also gets reduced if your adjusted gross income crosses certain thresholds ($110,000 – Married and filing jointly, $75,000 – Single, $55,000 – Married and filing separately; IRS Publication 972).
Claiming the Child Tax Credit:
File Form 1040, Form 1040A, or Form 1040NR. You cannot claim the child tax credit on Form 1040EZ or Form 1040NR-EZ. You must provide the name and identification (social security number) for each qualifying child.
This credit does not affect other exemptions or credits, such as the Earned Income credit (EIC) and welfare benefits such as Medicaid or subsidized housing. If you pay the Alternate Minimum Tax, you can use the child tax credit as an offset against AMT.
Please note that if the credits are greater than your tax liability, the excess amount of credit is lost, unless you qualify for the additional credit, which enables you to receive refunds for amounts in excess of your liability. Also to be noted is that the child does not have to be a dependant in your tax returns, so long as the qualifying criteria are met. You must also have a minimum of $11,300 in earned taxable income, in order to be eligible.