A potential tax credit of up to $1,000 is available for each dependent child included on an individual income tax return. Tax filers are sometimes initially confused because the credit is available on two different lines of IRS Form 1040. Tax filers with children may be able to reduce their income tax by claiming both the child tax credit and the additional child tax credit.

The two credit entries combined cannot total more than $1,000 per child, but otherwise, they are each calculated and reported differently. The child tax credit can only be used to offset tax that would otherwise be payable. The additional child tax credit is refundable, meaning that it is received even if there is no tax for it to offset.

The age limitation

A distinctive requirement of both credits is that each qualifying child must be under the age of 17 at the end of the applicable tax year. Most dependent children within the age limit qualify for both child tax credits. The child tax credit is not to be confused with a dependency exemption, which is the reduction in taxable income for each dependent. It is also separate from the child care credit.

Computation of the regular credit

The primary child tax credit is entered on Form 1040 after tax is figured on your taxable income. Depending on the number of qualifying children, the allowable credit may be greater than the amount of tax. If there is not enough tax on taxable income to use the full $1,000 credit per child, the unused portion of the credit may be available as the additional child tax credit.

Calculation of the additional credit

The additional child tax credit is based on earned income. The maximum additional child tax credit is 15 percent of your earnings over $3,000, but it is limited to the unused portion of the regular child tax credit. The entry line for the additional child tax credit is located closer to the end of the tax form, similarly to an entry for withholding.

No additional form is needed to take the child tax credit. IRS Schedule 8812 is used to calculate and claim the additional child tax credit. Any portion of the child tax credit that cannot be used as the additional child tax credit does not carry over to the following year.

There are reductions to the child tax credit at higher income levels. Contact a tax preparation company like Balkcom Pearsall & Parrish CPA's PA for more information about claiming the maximum allowable benefit of both child tax credits.