Many resident physicians will have children during residency, and you should be sure to get the tax credits and deductions you deserve for your new little one. It certainly won’t recover the costs of raising a child, but every little bit helps. The Child Tax Credit is worth up to $1,000 per child per year, so it’s worth knowing whether you qualify for this tax credit.
The Child Tax Credit is Separate from the Personal Exemption
In 2017, the personal exemption for a new child is $4,050. That means you can deduct $4,050 from your income and you don’t have to pay taxes on it. It doesn’t matter whether you itemize your deductions or take the standard deduction. Everyone gets the personal exemption.
The Child Tax Credit is separate from the personal exemption you can take for the child. The personal exemption is a tax deduction, while the Child Tax Credit is a tax credit. The amount of money you save on your tax bill from claiming a personal exemption for your child depends on your tax bracket — being in a higher marginal tax bracket means you save more money.
But the Child Tax Credit is a dollar for dollar reduction in the amount of taxes you owe. You’ll get the same tax benefit (up to $1,000 per child) no matter what tax bracket you are in (if you qualify for the credit).
How Do I Qualify For The Child Tax Credit?
There are several criteria you must meet in order to claim the Child Tax Credit.
You need to have a qualifying child that is less than 17 (16 or younger).
Most residents who have children during medical school or residency will be considered qualifying children. Please see the IRS’s guidelines if you are in a unique family situation.
Most residents will not have children that are 17 or older, but you stop qualifying for the Child Tax Credit when your child is 17 or older at the end of the tax year (for example, in 2017, children born on December 31, 2000, or earlier do not qualify).
You cannot make more than the IRS’s income limits
Like many tax credits, the Child Tax Credit is phased out as your income increases. In 2017, the Child Tax Credit is phased out if you make (modified adjusted gross income) more than:
- $110,000 if you are a married filing jointly filer
- $75,000 if you are a single, head of household, or widowed filer
If you make between $110,000 and $130,000 for married filing jointly filers, or between $75,000 and $95,000 for single filers, you may qualify for a partial Child Tax Credit. You lose $50 of the tax credit for every $1,000 you make above the income phase-out threshold. For example, if you are a married filing jointly taxpayer and make $150,000, then you are $5,000 over the income threshold and would lose $250 of the credit. In this case, you would qualify for only $750 of the credit.
The relatively high income threshold means that many residents, including double resident households, will be able to qualify for at least a partial Child Tax Credit. Remember that it’s your modified adjusted gross income, not your actual income, that will be used to calculate your tax credit. There are certain deductions you can take to lower your modified adjusted gross income, including (traditional) 401(k) contributions, health savings account (HSA) contributions, and the student loan interest deduction. If your income is near the phase-out level, consider utilizing some of these tricks to help you get a higher child tax credit.
Most attending physicians will not qualify for the child tax credit because they will be making significantly more than the income threshold. However, some doctors, such as part-time physicians or physicians who retire early, may have an income low enough that they may qualify for the credit.
You get to claim the tax credit in the year the baby was born
When you welcome your new child, you qualify for the full tax credit in the year they are born. It doesn’t matter whether the baby was born on January 1st, 2017 or December 31st, 2017. You do not claim a partial-year credit if your child is born in the middle of the year; you get the full tax credit regardless of when your child is born.
I remember a physician half-jokingly telling me how happy he was as a resident when his son was born at the end of December instead of in January of the next year. This enabled him to get an additional $1,000 tax credit on his taxes that year. Because he would be phased out of the Child Tax Credit once he was making an attending salary, that meant that he received an additional $1,000 in child tax credits because his child was born in December instead of January.
Additional Child Tax Credit
In some cases, the $1,000 per child tax credit you receive exceeds your total federal tax burden. While you cannot take the full Child Tax Credit to reduce your tax burden past zero, the IRS has an Additional Child Tax Credit that in most scenarios, allows you to get a tax subsidy (essentially, you are paying negative federal income taxes). The value of the Additional Child Tax Credit is $1000 minus your Child Tax Credit.
How Do I Get The Child Tax Credit?
Most tax software (e.g. Turbo Tax, H&R Block) will ask if you have any children in the initial questionnaire and will give you the Child Tax Credit automatically if you qualify. However, if you are filing by paper, you’ll need to fill out Schedule 8812 to calculate your credit.
The Child Tax Credit is a nice thank-you from the U.S. government for having children. Most residents will qualify for the tax credit, but if you’re slightly over the income phase-out threshold, consider taking steps to reduce your MAGI to qualify for the tax credit.
[Editor’s Disclaimer: As always, check with your accountant for definitive advice regarding the Child Tax Credit and other tax questions. I’m just a physician, not an accountant or financial advisor.]
What do you think? Did you receive the Child Tax Credit in residency? If you’re an early retiree, will you be able to qualify for the Child Tax Credit because of your decreased income?
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