If you file as a married couple, have children and your annual combined gross income is greater than $110,000 but less than $129,000 (one child) or $149,000 (two children), you should be making a valiant effort to maximize the child tax credit.
Clients ask me for suggestions about ways to increase their refund and save their hard-earned money. You might be surprised by how many married filing joint taxpayers with two children who earn $150,000 lose the child tax credit due to phase-out rules. Many of them have a 401(k) plan at work into which they don’t contribute a penny. In some instances, the company they work for will match up to a certain percent – and they still don’t contribute.
If the above criteria applies to you, and you have the option to defer some of your income into an employee sponsored 401(k), do so. You will decrease your taxable income, save for retirement and now qualify for a portion of the child tax credit. The more you defer into your 401(k), the higher the child tax credit amount that you will qualify for.