From THESTREET.COM: A popular tax credit is getting renewed attention this filing season because it's a key component of the economic stimulus payment.
By now, every parent has heard that their children might entitle them to an additional $300 apiece when the payments, or rebates as they are popularly called, are calculated. But some parents have discovered a distressing fact about their kids' tax-rebate eligibility.
Only youngsters that qualify for the Child Tax Credit count toward the stimulus bonus. That essentially rules out most college kids and some high schoolers.
To ensure that you get all that you are entitled to as far as child-related rebate money, here's a look at how the Child Tax Credit works.
Credit vs. Deduction
First, as the name says, it's a credit, which is a much more valuable tax break than a deduction. While a deduction will reduce your taxable income and thus could lower your tax bill, a credit counts directly toward that bill itself.The $1,000 per child tax credit means that if you have a $1,500 tax bill, it drops to $500. As a deduction, that $1,000 would get taxpayers in the 25% tax bracket only half that much in tax savings.
The one drawback to the Child Tax Credit is that it is nonrefundable. That means it can reduce your tax bill to zero -- you owe $1,000 and have a $1,000 credit -- but it will not get you money back from the IRS. If you owe only $500, your $1,000 credit will eliminate your tax liability but you lose the other $500.
In order to claim $1,000 for each of your children, the youngsters must meet certain qualifications. Each eligible child must be:
1. Your son or daughter, by birth or adoption, or a stepchild or foster child. Siblings, either full or step, also qualify, as do descendants, such as grandchildren, nieces and nephews;