Depending on your income and the age of your children, you could score a hefty income tax credit and possibly earn a tax refund.  In 2009, more lower-income individuals will qualify for a larger refundable tax credit.

If you have children who are under age 17 at of the end of 2009, you can get a $1,000 tax credit per child on your tax return. A tax credit reduces your tax bill dollar-for-dollar, so three qualifying children, for example, can cut what you owe Uncle Sam by $3,000. The credit may be limited if your income exceeds the levels listed below.

And the credit does not affect the exemptions you take for dependents? worth $3,650 each in 2009. The child tax credit is in addition to those exemptions.

To qualify for the credit, you must meet these tests:

Because a child tax credit reduces the amount of tax for the year, it may also reduce how much needs to be withheld from your paycheck. If you get a substantial tax refund, review the W-4 form on file with your employer.

That's the form that controls how much income tax is withheld from your wages. You may need to increase the number of allowances you claim to reflect the tax savings you receive through the child tax credit.

In most cases, the child tax credit is nonrefundable, meaning if your credit is bigger than your tax liability, your tax bill is just reduced to zero. Any remaining unused credit is lost.

In certain cases, though, you can get a child tax credit refund when the credit exceeds your tax liability. This means that you would get a check for the remaining tax credit after your tax bill has been reduced to zero. This refundable child tax credit is called the Additional Child Tax Credit.

The formula for calculating the credit is fairly complicated and a good reason to use TurboTax. If you have one or more qualifying children and more than $3,000 of earned income (income from wages and other job-related compensation) in 2009 or 2010, you may be entitled to a refund of up to 15 percent of your earned income (including tax-free combat pay) that exceeds $3,000.

Or, if your earned income is less than $3,000, you may be eligible for a refundable credit if you have three or more qualifying children and you paid Social Security taxes that exceeded your earned income credit.

The 2009 Stimulus Act made it much easier to qualify for refundable Additional Child Tax Credits by lowering the earned income threshold for 2009 and 2010 from about $12,500 to the current $3,000.

As a result, more people wth modest incomes in 2009 and 2010 will qualify for larger refunds. The maximum possible refundable credit was increased by about $1,400. 

The child tax credit is reduced or eliminated if your adjusted gross income is above certain thresholds. The credit amount is reduced by $50 for each $1,000 (or fraction thereof) by which the taxpayer's modified adjusted gross income (AGI) exceeds the threshold amount.

The threshold is:

Herb and Susan have two children under 17. The couple files a joint return and reports income of $50,000 in 2009. Their AGI is well below the $110,000 phase-out threshold for married couples filing jointly. They may claim the full $2,000 child credit since the credit does not exceed their tax liability.

Sam and Judy also have two children under 17, but their joint income is $130,000, meaning they will lose some of their child tax credit. Since their combined income exceeds the $110,000 phase-out threshold for married couples by $20,000, they must reduce their credit by $50 for every $1,000 over the limit. So they would lose $1,000 of their credit ($50 x 20) and could claim only a $1,000 child tax credit.

Note that the credit is reduced by a total of $50 for each $1,000 your income exceeds the threshold, not by $50 for each child for whom you claim the credit.

Keep in mind that the child tax credit rate of $1,000 per child is scheduled to disappear after 2010, but there's a good chance that Congress will extend it past that date or even make it permanent.