What is the child tax credit?
The Taxpayer Relief Act gives a tax credit to anyone filing, separately or jointly, for each qualifying child under 17. The credit is not available for 1997, but will go into effect this year -- meaning it can be claimed on tax returns beginning in 1999.

For 1998, the filer may claim a tax credit of $400 for each qualifying child. Starting in 1999, the credit will increase to $500. So a single parent with three children could claim a credit of $1200 in 1998 and $1500 in 1999 and each subsequent year.

What is a qualifying child?
Any individual under the age of 17 who can be claimed as a dependent and is the child or other direct descendent of the taxpayer is considered a qualifying child. Stepchildren and foster children also qualify.

The taxpayer must also be entitled to a dependency deduction for the child. That deduction, however, is not reduced or modified by the tax credit. The taxpayer may claim both the child tax credit and the standard dependent deduction.

Are all taxpayers eligible for the program?
Some higher income taxpayers are not eligible to receive the credit. For taxpayers filing jointly, the amount of the credit decreases by $50 for each $1,000 of income over $110,000. For a single taxpayer the reduction begins at $75,000. For a married couple filing separately the threshold is $55,000. These earnings levels apply to modified adjusted gross incomes.

For example, a married couple earning $112,000 a year with one child could take a credit of $300 rather than $400. If they couple earned $119,000 or more, they would not be eligible for the credit. But, if they had two children, they could still take a $400 credit for the second child.

A single person earning $80,000 would have to reduce his credit by $250. So, if he has two children, he would receive a total credit of $550 in 1998 or $750 in 1999.

These phase-out levels are not indexed to inflation so they will stay the same until Congress passes legislation to modify them.

For taxpayers with lower incomes, the child tax credit can sometimes be refunded. If the allowable credit is more than the amount of income tax owed by the taxpayer, it can be refunded based on a formula taking into account social security taxes and earned income credit.

Should I change my withholding?
Taxpayers who will have their income tax reduced by the child tax credit may want to consider having less money withheld throughout the year. Those eligible for the credit can estimate how much they should reduce their withholdings by estimating their total credit and dividing it by number of paychecks they will receive during the year.

For example, a couple with two children would qualify for a credit of $800 in 1998, so, for fiscal 1998 they might want to reduce their withholdings by about $15 a week.