Child-Related Tax Changes

In this update, we discuss certain child-related tax changes that may impact your 2013 tax return.

Child’s Investment Income – The amount of taxable investment income a child can have without it being subject to tax at the parent’s rate for 2013 remains the same ($1,900) as 2012.

Earned Income for Additional Child Tax Credit – For 2013, the amount your earned income must exceed to claim the additional child tax credit is $3,000. The additional child tax credit is available to taxpayers with qualifying children. A qualifying child must be under the age of 17 before the end of the tax year and be a resident or citizen of the United States. You must also be able to claim this child as a dependent on your return.

You may receive a refund through the additional child tax credit which could be up to 15% of your total earned income over $11,750 and under the income limitations. The income limitations are as follows:

  • Married filing jointly- $110,000
  • Single, Head of household or qualifying widow(er)-$75,000
  • Married filing separately-$55,000

The personal exemption for each child in 2013 is $3,900. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $254,200 ($305,050 for married couples filing jointly). It phases out completely at $376,700 ($427,550 for married couples filing jointly).

The $1,000 Child Tax Credit, which was created by the Bush tax cuts, was set to expire at the end of 2012. However, the fiscal cliff deal signed on January 3, 2013 extended the current Child Tax Credit for the next five years.