Children are a bonus when you file personal income taxes. They have always qualified as dependents, but for 2009 and 2010, they also provide extra tax credits for you. The new income tax child care deduction law gives taxpayers additional tax credits for these years.

Deduction Versus Credit

Deductions reduce the amount of income. Credits reduce the amount of taxes . This means you only get a percentage of the tax if you take a deduction, whereas a credit reduces your taxes by the exact dollar amount.

Definition

In order to take advantage of the income tax child care deduction law, you must have a child under the age of 17. Each child entitles you to a $1,000 credit, which you apply directly to your taxes.

Qualifications

The other qualifications for this credit are the child must be a U.S. citizen and a blood or adoptive child, stepchild or grandchild. Foster children also qualify if they live with you for the year.

Requirements

In order to qualify, you must provide the child's social security number or tax identification number (TIN) on your income tax return.

Benefit

You can claim this deduction of $1,000 for each child as long as you owe taxes for this amount. For example, if you owe taxes of $2,500 and you have three children under the age of 17, you can reduce your tax to zero by taking the $3,000 deduction; however, the extra $500 is lost.

Exception

In the example in Section 5, the extra amount of money is lost; however there are some cases where you can use the $500. If you owe money for other taxes, such as social security, then the $500 goes towards that amount. If you owe a social security tax of $2,000, the government applies the $500 to it and you then only owe $1,500.

Source:

2009, 2010 Child Tax Credit Information & Calculator

The Most-Overlooked Tax Deductions

Resource:

Form W-4 (2010)