Everything You Need To Know About the Child Tax Credit

Learn about the federal child tax credit and how it can provide valuable financial assistance for families raising children.

Note: PreggyFinance is not an official source for tax guidance or financial advising. Please consult the IRS website or your personal finance advisor for specific information. This content is meant to be strictly informational.

As an expectant parent, the financial concerns start piling up from the very first moment. Of course, you entertain thoughts about how best to tackle the costs of food, amenities, child care, and education. With the myriad of options out there, it’s hard to make decisions on the best saving, investment, and healthcare options. The good news is that when it comes to your taxes, there is some relief. The Child Tax Credit can be a game-changer for your family, once you and your dependent children qualify for it.

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What Is the Child Tax Credit?

This is a nonrefundable tax benefit designed to help families with the costs of raising children. It allows a taxpayer to claim up to a $2,000 tax credit per dependent based on a series of qualifiers such as age of child, income, and residency status.

What is the Impact of the Federal Child Tax Credit on Families?

Families, especially low and middle-income families, can benefit significantly from receiving a tax credit. It reduces their tax liability and, in so doing, provides them with funds that can be used for food, housing, child care, medical costs and other needs associated with raising children.

What’s the difference between the Federal Child Tax Credit vs. Child and Dependent Care Credit ?

These are two different credits. Different rules and qualifications apply for each one. This is a tax benefit for people with children. It operates by lowering the amount of tax owed on a dollar-for-dollar basis for each qualifying dependent child.

The Child Dependent Care Credit, on the other hand, is designed to offset a percentage of the expenses spent on child care, such as daycare, camps, and after-school care. Parents or caregivers can claim credit for part of those expenses if they can prove them necessary in order for them to work, go to school, or find a job.

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How Does the Child Tax Credit Work?

At the time of writing this, you’d need to follow these steps: Once you have filed your Form 1040, U.S. Individual Income Tax Return and attached a completed Schedule 8812, Credits for Qualifying Children and Other Dependents and submitted both forms to the IRS and you would have satisfied the eligibility requirements.

Everyone’s tax situation is different, but generally this credit works on a dollar-for-dollar basis. If your tax liability is lower than the credit amount, then your total tax bill can be reduced to zero, but you will lose the right to any remaining credit. If you qualify for the Additional Child Tax Credit, you may be able to receive a refund for the unused balance.

Who Qualifies for Child Tax Credit?

The child you are claiming must satisfy certain qualifications.

They must:

  • Be under 17 years old at the end of the tax year

  • Be your son, daughter, stepchild, foster child, brother, sister, half-brother, half-sister, stepbrother, stepsister or a descendant of any of those people

  • Be properly claimed as a dependent on your tax form

  • Cannot have filed a joint tax return with their spouse, unless they file it to claim a refund of withheld income taxes or estimated taxes paid.

  • Have lived with you for at least half the year

  • Be a US citizen, US national or US resident alien and have a valid Social Security Number

You must:

  • Have provided at least half of the child’s support during the last year. A child who has earned enough income to financially support themselves for more than six months will not qualify.

  • Not exceed income requirements. Annual individual income should not be more than $200,000 or $400,000 combined income in the case of jointly filed returns. You may still get a partial refund for higher incomes but for every $1000 your income exceeds the limit, $50 is deducted from the credit until it may be eliminated entirely.

You can use this IRS tool to find out if your dependent or child qualifies for this or other dependent credits.

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How Is the Child Tax Credit Calculated?

When you submit your paperwork, the maximum amount you are eligible for per child will be worked out, and after that any income or tax liabilities will be taken into account in determining reductions. For example, if your income exceeds the threshold levels your tax credit will begin to be reduced until you may no longer be eligible or if your tax liability is less than the credit, it will be reduced to zero.

How Much Do Parents Receive for Each Qualifying Child?

The full Child Tax Credit payments for each qualifying child as of 2024 is $2,000.

What Are the Income Limits for the Child Tax Credit payments?

Annual individual income should not be more than $200,000 or $400,000 combined income in the case of jointly filed returns.

Can I Claim the Child Tax Credit if My Income Is Below the Threshold?

Yes, you can. Partial refunds may still be granted to those whose liability is below the credit value.

Can You Get It if You Have No Income?

Don’t let no income stop you. If you fulfill the requirements of the Child Tax Credit, such as having a child under 17, you may be able to receive at least a partial refund. It is worth filing a tax return with the attached schedule 8812 even if you have no income, as you may receive up to $1,600 on every $2,000 value credit per dependent.

What Happens if My Income Exceeds the Phase-Out Limit?

If you exceed $200,000 individually or $400,000 for joint returns, you may still get a partial refund for higher incomes but for every $1000 your income exceeds the limit, $50 is deducted from the credit until it is eliminated entirely.

How Do You File a Claim?

Make sure that your children and other dependents are stated on your Form 1040, U.S. Individual Income Tax Return. You must then attach a completed Schedule 8812, Credits for Qualifying Children and Other Dependents and submit both forms to the IRS.

Is the Child Tax Credit Refundable?

The current status is that the Child Tax Credit is a nonrefundable tax credit but it may be partially refundable for some taxpayers as an Additional Child Tax Credit. The Child Tax Credit’s full value is $2,000 per child. If a taxpayer has a tax liability lower than this value, they may be eligible to receive a tax refund on the excess of up to $1,600.

This means low-income families would have the full credit available to them regardless of a lack of tax liability or tax liabilities under the credit limit. Partial refunds may to $1,600 of the $2,000 per child. Fully refundable means parents would receive the full $2,000.

When To Expect Your Child Tax Credit Refund?

Usually refunds are processed within 21 days of filing your return.

However, claiming credits such as the Child Tax Credit can further delay the process. This is because the IRS, by law, is not permitted to issue refunds before the 15th of February each year. The extra time is supposed to be used to prevent fraudulent refunds. You can check on your refund status using the IRS “Where’s My Refund” tool.

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FAQs

Is the Child Tax Credit Taxable?

No, it is a non-refundable tax credit and is not treated as earned income. However, some taxpayers may receive partial refunds if their tax liability is lower than the full value of the credit.

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Can You Claim the Child Tax Credit for Multiple Children?

Yes, there is no limit on the number of children that you can claim for, once they have valid social security numbers and meet the qualifying requirements.

There is no limit on the number of children or dependents you can claim on your taxes.

Are There Any Recent Changes to the Child Tax Credit?

There have been changes to many tax credits and rebates put in place during the pandemic.  The American Rescue Plan, which offered more aid to families during COVID, expired in 2022. This means that credits have gone back to their pre-Covid limits of $2,000 instead of $3,600 for each child under 6 and for children aged 6 to 16, $2,000 instead of $3,000. Payments have also stopped being broken up into monthly advance payments and paid as such.

As of January 31, 2024, the House has approved a bipartisan tax package, including a temporary expansion of the child tax credit.

How Do I Qualify for Advance Payments of the Child Tax Credit?

This is no longer available as it fell under the American Rescue Plan during the COVID era, and those provisions expired in 2022.

Can I Claim the Child Tax Credit if I Have Joint Custody of My Child?

Only one parent who lives with the child for more than half the year can claim. So, even if you and your ex share joint custody, you cannot split the Child Tax Credit. It’s best to come to an agreement with your ex as to who should claim the full credit. For instance, some parents agree to claim for children in alternate years.

How Does the Child Tax Credit Impact My Tax Liability?

It aims to reduce your tax liability by allowing you to claim up to $2,000 tax credit on each eligible child. However, if your credit exceeds your tax liability, then your tax bill can only be reduced to zero, and you will lose any remaining credit you may have been eligible for. If you qualify for the Additional Child Tax Credit, you may still be able to claim a refund on the lost balance. Some people may qualify for advance payments.

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Can You Opt Out of Child Tax Credit?

Yes, if for any reason you no longer want to receive the credit, you can opt-out. If you file jointly, your spouse will have to do the same to avoid receiving half-payments.

Why Don’t I Qualify for the Child Tax Credit?

Your income or combined income may exceed the threshold income by so much that it eliminates the credit altogether. In that case, you are no longer eligible. If your dependent/child does not meet the requirements, you may not qualify to receive the child tax credit. In such circumstances, you may be eligible for the credit for other dependents instead, which has a maximum credit amount of $500 per dependent if you qualify for it.

 

Sources:

https://www.irs.gov/credits-deductions/individuals/child-tax-credit

https://www.irs.gov/help/ita/does-my-childdependent-qualify-for-the-child-tax-credit-or-the-credit-for-other-dependents

https://www.irs.gov/credits-deductions/individuals/child-and-dependent-care-credit-information

https://www.brookings.edu/articles/what-is-the-child-tax-credit-and-how-much-of-it-is-refundable/

https://www.nerdwallet.com/article/taxes/qualify-child-child-care-tax-credit

https://www.taxpayeradvocate.irs.gov/get-help/refunds/held-or-stopped-refunds/

https://www.cnet.com/personal-finance/taxes/child-tax-credit-2024-when-to-expect-your-tax-refund/

https://filemytaxesonline.org/get-child-tax-credit-no-income/