What Is the Child Tax Credit?

The Child Tax Credit is given to American taxpayers for each qualifying dependent child who is under the age of 17 at the end of the tax year. The Tax Cuts and Jobs Act (TCJA), passed in December 2017, doubled the credit to $2,000 per child and made much of it refundable. Previously, it was a $1,000 nonrefundable credit.  

A tax credit reduces the taxpayer's liability on a dollar-for-dollar basis, intended to provide an extra measure of tax relief for taxpayers with qualifying dependents.

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Tax Deductions Vs. Tax Credits

How the Child Tax Credit Works

The TCJA doubled the Child Tax Credit, for tax years 2018 through 2025. The new $2,000-per-qualifying-dependent-child credit also has a $1,400 refundable portion. This means that even if the parent ends up owing no taxes, or owing less than $1,400, up to $1,400 can be received as a tax (credit) refund if the child and parent both qualify.

Only one taxpayer can claim the Child Tax Credit, even if the qualifying child divided time between more than one household during the tax year. If one parent had primary custody of the child, that parent usually receives the tax credit. In cases of joint custody, the parents must reach an agreement about when each will claim the credit—in alternate years or according to some other formula.

Key Takeaways

  • The child tax credit is an income tax credit of $2,000 per eligible child for American taxpayers.
  • Eligible children are legal dependents under the age of 17 who are U.S. citizens, U.S nationals, or U.S. resident aliens.
  • This tax credit is phased out for high-income families, as it was intended to help low- to middle-income workers.

Qualifying for the Credit

The Internal Revenue Service has established several factors that determine eligibility for the Child Tax Credit. To qualify, the child must be a U.S. citizen, U.S. national, or U.S. resident alien. He or she must also have lived with the person who is claiming the tax credit for more than half of the tax year and be claimed as a dependent on the taxpayer's return. The child must not have provided more than half of their own support during the year.

Although most taxpayers qualify for the Child Tax Credit by claiming their children or stepchildren, other family members under the age of 17 may also qualify if the taxpayer provided more than half their financial support during the tax year. Siblings, grandchildren, and nieces and nephews may be eligible for the credit if they meet the age, citizenship, and residency tests. Adopted and foster children also qualify for the credit.

Because the tax credit was designed to help families in lower and middle-income brackets, it had originally been reduced or eliminated for earners making above certain fairly modest income levels. In the 2017 tax year, for married couples who file a joint return, the tax credit was phased out over adjusted gross incomes of $110,000 ($55,000 for married filing separately); for single, head of household, and qualifying widow(er) filers, the figure was $75,000. The TCJA increased these levels to $400,000 for married couples filing jointly and $200,000 for single, head of household, and married filing separately. These higher levels will sunset at the end of 2025.

The Internal Revenue Service (IRS) offers a useful tool to help taxpayers figure out if their child or dependent qualifies for the Child Tax Credit.

The Additional Child Tax Credit

The additional child credit is designed to help families who owe too little tax to take full advantage of the entire Child Tax Credit. The ACTC refers to the $1,400 refundable portion of the Child Tax Credit.