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What Is the Child Tax Credit?

Published Jan. 17, 2024
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The Child Tax Credit is a federal tax benefit that gives you a dollar-for-dollar reduction on your tax bill for dependent children under age 17. You can qualify for the full benefit if your income doesn't exceed $200,000 as a single filer or $400,000 for joint filers. Even if the Child Tax Credit amounts to more than what you owe, a portion of the credit might still be refunded to you, if certain criteria are met.

Below, we'll break down how the Child Tax Credit works, who qualifies, and how to claim it on your upcoming tax return.

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What is the 2023 Child Tax Credit?

The 2023 Child Tax Credit (for taxes filed in 2024) is worth $2,000 for each qualifying dependent child. The credit reduces your tax bill dollar for dollar, which could set you up for a bigger refund. This differs from a tax deduction, which reduces your taxable income and may not have the same impact on your final tax bill.

To understand the potential of this credit, let's look at a simple tax return. Let's say your household earns $74,000, you file your taxes jointly with your partner, and you have two dependent children under 17. You take the standard deduction ($27,700), reducing your taxable income to $46,300. Using 2023 tax brackets for married filing jointly, you would owe $5,092, as demonstrated below.

Filing status Married filing jointly
Dependent children 2
2023 household income $74,000
Standard deduction $27,700
2023 taxable income $46,300
Tax brackets 10% of $23,200 ($2,320), 12% of $23,100 ($2,772)
Total 2023 tax liability $5,092
Data source: Author's calculations.

Without the Child Tax Credit, you would owe $5,092. But since you have two qualifying dependents, you can cut $4,000 from your taxes. This effectively reduces your tax liability to $1,092, which could translate into a substantial refund if you had paid more than that amount throughout the year.

Who is eligible for the Child Tax Credit?

You're eligible for the full Child Tax Credit if your modified adjusted gross income (MAGI) isn't more than $200,000 (for single filers) or $400,000 (for married filing jointly). If your MAGI exceeds these limits, your tax credit will be reduced by $50 for each $1,000 over the threshold.

For a child to be considered a true dependent, they must meet the following six criteria.

Age The child must be under 17 at the end of the tax year. For instance, if your child was 16 at the end of 2023, they would meet the age requirement for the filing you complete in 2024.
Relation to you The child must be your son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of one of these (for instance, a grandchild).
Financial support The child cannot provide more than half of their own financial support during the tax year.
Residency The child has lived with you for more than half of the year.
Dependency status The child must be claimed as a dependent on your taxes and cannot file a joint tax return with their spouse, unless they're claiming a refund on withheld income or estimated taxes.
Citizenship The child must be a U.S. citizen, U.S. national, or U.S. resident alien.
Data source: IRS, "Child Tax Credit."

How do you claim the Child Tax Credit?

For your 2023 taxes, you can claim the Child Tax Credit by entering the number of dependents and attaching Schedule 8812, "Credit for Qualifying Children and Other Dependents." Most tax-filing software will provide these forms and help you fill them out.

What is the additional Child Tax Credit (ACTC)?

The Child Tax Credit can reduce your tax bill, but what if your tax liability isn't big to begin with? What if you owe less taxes than the tax credit is worth? Can you get the leftover credit refunded to you?

Well -- sort of.

First off, the Child Tax Credit is nonrefundable, meaning, the full benefit will not be refunded if your tax liability is less than the credit. In other words, if you owe $2,000 in taxes but have four children under 17 ($8,000 in tax credits), you won't automatically get $6,000 from the IRS.

However, you might get a portion of your Child Tax Credit in what's known as the "additional Child Tax Credit," or ACTC. Basically, the ACTC allows taxpayers who qualify for the Child Tax Credit but owe little or nothing in taxes to get a partial refund of the full tax benefit. The maximum refund you can get for 2023 taxes is $1,600 for each qualifying dependent.

Who is eligible for the ACTC?

The income and dependency criteria for the ACTC are no different than the Child Tax Credit (see the section above for more details). But there are some additional criteria that you must meet to claim this credit:

  • You must earn at least $2,500, or have three or more dependents. This income threshold excludes most sources of passive income, such as unemployment and pensions.
  • You must include foreign-earned income (as reported on Form 2555 or Form 2555-EZ)

If you meet these criteria, you can calculate your tax credit by multiplying your earned income above $2,500 by 15%. Again, there is a cap of $1,600 per qualifying dependent, so your credit cannot exceed that amount for your number of dependents.

As a simple example, let's assume you have two dependents and an earned income of $35,000. Multiplying 15% of the amount above $2,500 ($32,500) comes out to $4,875. Since this is above the maximum credit of $1,600 per dependent (or $3,200 for two), you could be eligible for the full refund.

What is the future of the Child Tax Credit?

Since 1997, the Child Tax Credit has helped millions of taxpayers manage the costs of raising their families. Over the years, it's undergone several changes, most significantly to the benefit amount. Though it's unlikely the Child Tax Credit will be eliminated in the future, its full benefit amount will likely fluctuate.

For tax year 2023, however, the full credit amount still stands at $2,000 per qualifying dependent. To stay up-to-date on the Child Tax Credit, including any impending changes or questions on eligibility, check out the IRS page about it.

FAQs

  • No. The Dependent Care Credit is a tax credit that helps working or job seeking parents afford child care expenses, like daycare.

  • Yes, if you have dependents who don't qualify for the Child Tax Credit, you might still be eligible for the credit for other dependents. The maximum credit is $500 per dependent and can include parents, children above the age of 18, and dependents unrelated to you.

  • Currently, 14 states offer Child Tax Credits, including California, Colorado, Idaho, Maine, Maryland, Massachusetts, Minnesota, New Jersey, New Mexico, New York, Oklahoma, Oregon, Utah, and Vermont.