Credits and Exemptions for Children

Reprinted with permission of Tax Analysts.

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Abstract

The Earned Income Tax Credit, Child Tax Credit (CTC), Additional Child Tax Credit (ACTC), and the dependent exemption all provide benefits to families with children. In 2009, a single mom (or dad) with two children can receive benefits ranging from $0 to about $7,500 - depending on her income, age of the children, and where the children live. While this assistance is extremely important to many low-income families, they must navigate a bewildering set of rules to take full advantage of the credits. Due to the piecewise implementation of these credits and exemptions, total benefits bounce around erratically as income grows.

Introduction

The Working Families Tax Relief Act of 2004 simplified the definition of a child in many tax programs, but retained differences in age limits to qualify for particular programs. For example, only children under age 19 or students under age 24 count as children for dependent exemptions and the EITC. The CTC and the ACTC require that children be less than 17. Generally, children must live with the taxpayer for more than one-half of the year.

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