Plenty of people dread filing their taxes each year, and it’s easy to see why. Finding out you owe a large tax bill can be a major source of stress and may set you back on other financial goals.
And since you often don’t know until you’ve completed your return whether you’ll owe money, it’s something that can weigh on you for months.
The good news is the federal government has plenty of initiatives to help reduce the tax burden for American families. One of those initiatives is the popular child tax credit, which offers parents a tax break for each child they have. It can help reduce the amount you owe in taxes or boost your refund by thousands of dollars.
What Is the Child Tax Credit (CTC)?
The child tax credit (sometimes referred to as the CTC) is a federal tax credit that allows parents to get money back on their taxes for each qualifying dependent child they have. The credit was created as a part of the Taxpayer Relief Act of 1997 and has become one of the most popular and well-known tax breaks available to American families.
In addition to the federal tax credit, many families are eligible for a state child tax credit offered by their state’s government. Nine states offer a child tax credit to qualifying parents:
- California
- Colorado
- Idaho
- Maine
- Maryland
- Massachusetts
- New Mexico
- New York
- Oklahoma
If you live in one of those states, note that the state child tax credit may work differently than the federal one. For more information on your state child tax credit, go to your state’s income tax authority website.
Child Tax Credit Amount
With the exception of 2021, when Congress made changes to the child tax credit as part of the American Rescue Plan, the child tax credit amount for 2018 through 2025 is $2,000 for each qualifying child.
It’s important to note tax credits directly reduce your tax liability, unlike deductions, which only lower the amount of taxable income. Most people consider tax credits better than deductions. For example, if you have a tax bill of $2,500 and then claim a $2,000 child tax credit, you now owe $500. You’d likely owe more if it were a deduction.
Additionally, of the $2,000 child tax credit amount, $1,400 is refundable. When a credit is refundable, it means you can receive a refund for the amount of the credit that exceeds your tax liability for the year. As a result, even parents who pay no income taxes throughout the year can receive up to $1,400 per child for the child tax credit.
You may remember the enhanced child tax credit that was offered in 2021 as a part of the American Rescue Plan Act. This legislation increased the child tax credit from $2,000 per child to $3,000 per child for children ages 6 and older and $3,600 per child for children under the age of 6.
The 2021 version of the credit had two phaseouts. The first reduced the tax credit amount back to $2,000 for families earning $150,000 for married couples, $112,500 for heads of household, and $75,000 for single filers and married couples filing separately. The second phaseout for the 2021 tax credit is the same as in other years.
Parents could also opt to receive advance payments of the credit, meaning they would receive the credit in monthly payments rather than in one lump sum when they filed their taxes.
The expanded child tax credit only applied to the tax year 2021. Starting in the 2022 tax year, the tax credit amount and payment method revert back to the 2020 rules.
For more information on the advanced child tax credit of 2021, see our article on claiming the child tax credit.
Who Qualifies for the Child Tax Credit?
You can receive the child tax credit for each qualifying child you have. To qualify, your child must have a Social Security number that’s valid for employment in the United States and be under the age of 18 by the end of the tax year. As a result, you can’t claim your child in the year they turn 18.
You can claim the child tax credit for your:
- Child
- Stepchild
- Adopted child
- Eligible foster child
- Sibling
- Step-sibling
- Half-sibling
- A descendent of any of these (such as a grandchild, niece, or nephew)
However, you can only claim the credit for a child who lived with you for more than half the tax year, who you claim as a dependent on your income tax return, and who doesn’t provide more than half their own financial support throughout the year.
If your child or dependent doesn’t meet these criteria, look into the child and dependent care tax credit instead.
Note that in the case of parents who share a child but aren’t married, only one parent can claim the child tax credit for each child. It’s usually the custodial parent since they’re the parent providing the majority of support. However, some custody agreements allow parents to switch off claiming the children or for each parent to claim one child if the pair shares two children.
The federal government limits who can claim the child tax credit based on modified adjusted gross income (which is the same as the adjusted gross income, or AGI, for most filers).
Married filers with a joint AGI of $400,000 or less and single filers with an AGI of $200,000 or less can claim the full credit. Heads of household and married couples filing separately are subject to the same income cap as single filers.
Taxpayers with an income above those thresholds will see their tax credit phased out by $50 for each $1,000 of income above the thresholds. For example, a single filer with an income of $205,000 and one child will have their credit reduced by $250, meaning they can only get a credit of $1,750. The math works like this:
$205,000 (income) – $200,000 (single-filer threshold) = $5,000 (overage)
$5,000 (overage) ÷ $1,000 (income increments) = 5
5 x $50 (phase-out increments) = $250
How to Claim the Child Tax Credit
If you’re eligible for the child tax credit for one or more qualifying children, you can claim it when you file your tax return. First, you’ll use Form 8812 to determine your eligibility. This form asks for information about your household income and number of dependents.
If you’re filing your 2021 taxes, you can also use this form to report your advance child tax credit payments and determine whether you need to pay any of the funds back. That could happen if you received higher advance payments than you were entitled to based on your income.
Once you’ve completed Form 8812, you can list your dependents on Form 1040, the individual tax return form. For each dependent, list their Social Security number, relationship to you, and whether you’re claiming the child tax credit for them.
When it comes time to file your tax return and settle up your tax bill, one of two things will happen. Either you’ll owe money and the child tax credit will reduce the amount you owe, or you’ll receive a refund, which will include all or part of the child tax credit you’re entitled to.
Child Tax Credit vs. Child and Dependent Care Tax Credit
The child tax credit is the most popular tax credit available to U.S. parents, but it’s not the only one. Another well-known credit is the child and dependent care credit, which is available to parents and caregivers who pay for child care for a child under the age of 13.
Unlike the child tax credit, you can’t claim the child and dependent care tax credit simply because you have a child. Instead, you must have actually spent money on child care. You can claim up to $8,000 of expenses per child, or $16,000 total if you have more than one qualifying child.
While the child and dependent care tax credit most often applies when you have a qualifying child, you can also claim the credit if you care for a spouse, child, or another dependent who is physically or mentally incapable of caring for themselves if you paid for care on their behalf.
Child Tax Credit FAQs
Do you still have questions about the Child Tax Credit? These are the answers to some of the most frequently asked questions about this popular tax credit so you can feel confident when it’s time to file your taxes.
Does the Child Tax Credit Lower My Tax Refund?
No, the child tax credit doesn’t lower your tax refund. On the contrary, this credit can help increase your tax refund, even if you didn’t have any tax liability for the year.
However, you might find that because the expanded child tax credit ended after the 2021 tax year, your refund for 2022 is lower even with this tax credit.
Do I Have to Pay Back the 2021 Child Tax Credit?
In 2021, you had the opportunity to receive a part of the child tax credit as advance payments rather than in a single lump sum when you filed your taxes. However, if you received advance payments of this tax credit and your income exceeded the threshold to receive the amount you got, you may have to pay part or all of it back.
Are 2021 Advanced Child Tax Credit Payments Taxable Income?
No, the advance payments as a part of the 2021 child tax credit don’t count as taxable income. Instead, they were an advance on a tax credit you would typically receive when you filed your taxes after the year ended.
Are Advanced Child Tax Payments Permanent?
The advance child tax credit payments you may have received in 2021 were temporary. At this time, Congress hasn’t voted to make these payments permanent, so the tax credit reverts to its pre-2021 rules. However, there’s always hope Congress will eventually decide to make the advance payments or expanded credit amount permanent.
Final Word
The child tax credit is one of the most popular tax credits available to U.S. taxpayers. You can receive up to $2,000 per qualifying child, with more than half of that amount being refundable.
This tax credit has gone through some changes in recent years due to Congress’ response to the pandemic and its effect on American families. At this time, the tax credit has reverted to its 2020 form. Consult a tax professional or tax filing software when it’s time to file your taxes to ensure you’re keeping up with the latest child tax credit rules.