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. Recent tax legislation 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 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 tax legislation passed in December 2017 doubled the Child Tax Credit, starting with the 2018 tax year until the end of 2025. The new $2,000-per-qualifying-dependent-child credit makes $1,400 of the Child Tax Credit refundable. This means that even if the parent ends up owing no taxes, or owing less than $1,400, up to that amount 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.
  • 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.

Although most taxpayers qualify for the Child Tax Credit by claiming their children, 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 is phased out over adjusted gross incomes of $110,000; for single, head of household and qualifying widow(er) filers, the figure was $75,000.

The new tax law increased these levels to $400,000 for married couples and $200,000 for single, head of household and qualifying widow(er) filers. These higher levels will sunset at the end of 2025.

Removing the 'Additional Child Tax Credit'

The new tax law abolished the additional child credit, which was designed to help families who owed too little tax to take full advantage of the Child Tax Credit. which was previously nonrefundable. The Additional Tax Credit was a refundable credit available to families with at least three children or other qualifying dependents who hadn't owed enough taxes to get the full credit they were owed. (The family must also have earned at least $3000 to receive the credit.) This additional credit ended with passage of the new law because up to $1,400 per child is now refundable under the regular Child Tax Credit.