What Is the Child Tax Credit and How Do I Qualify for It?
If you claim at least one dependent child on your tax return, you may qualify for the Child Tax Credit.
What is the Child Tax Credit?
In 1998, Congress introduced the Child Tax Credit to provide tax relief to parents or guardians with minor dependents.
Taxpayers with at least one qualifying dependent can apply a $2,000 tax credit for each child.
Only one taxpayer can claim the Child Tax Credit on that child per year. That is, if divorced parents have joint custody of a child, only one can claim the child that tax year.
The Child Tax Credit has income limits, so find out if you qualify.
If you qualify for the credit, you deduct the CTC from the amount you owe the IRS.
How Tax Credits Work
While deductions are valuable tools to reduce your taxable income, tax credits apply directly to your tax bill.
Some tax benefits like the Child Tax Credit are refundable or partially refundable if you earned at least $2,500.
- Refundable credits reduce your tax bill. If the credit exceeds the amount due, the IRS pays you the difference as a refund.
- Partially refundable credits refund a portion of the credit, but not the full amount.
- Non-refundable credits can make your tax bill $0. However, the excess amount of the credit would be lost.
Which Dependents Are Eligible for the Child Tax Credit
According to the IRS, a qualifying child is:
- 16 or younger at the end of the tax year
- Your son, daughter; stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of any
- US citizen, US national, or US resident alien
In addition, the child must:
- Be claimed as your dependent
- Have lived with you for more than half of the year
- Not provide more than half of his or her own financial support
- File a joint return for the year
The IRS created an interactive tool to determine if you qualify for the Child Tax Credit or Credit for Other Dependents.
Recent Changes to the Child Tax Credit
Congress modified the Child Tax Credit in the Tax Cuts and Jobs Act of 2017. Changes include:
- Doubling the tax credit amount per qualifying child (from $1,000 to $2,000)
- Making the credit refundable up to $1,400
- Making the credit more accessible to higher-income families by raising the income thresholds
Child Tax Credit Income Limits
The Child Tax Credit also requires you to meet income qualifications.
First, you must earn at least $2,500.
Second, have a modified gross adjusted income (MAGI) of $400,000 or less if married filing jointly. For everyone else, earn $200,000 or less.
If filing as single or head of household and earned between $200,000 and $240,000, the credit begins to phase out and only offers a partial benefit. Above $240,000, you cannot claim the credit at all.
If married filing jointly, the credit phases out entirely at $440,000.
Credit for Other Dependents (ODC)
In some cases, you can claim qualifying non-child dependent, like a parent or college-age children under the age of 24. To qualify as “other dependent,” the person must be:
- Claimed as a dependent on your return
- Not qualified to claim under the Child Tax Credit
- A US citizen, national, or resident alien
If you qualify for the ODC, you could claim an additional $500 credit.
Child and Dependent Care Tax Credit (CDCTC)
If you earned income and pay someone else to care for a dependent, you may claim this credit. It provides for a credit up to 35% of qualified care expenses. The IRS defines qualified expenses as household or supervisory care of the dependent while you worked or looked for work.
However, income level determines the value of your credit. The maximum amount you can apply is $3,000 for one dependent and $6,000 for more than one dependent.
Consequently, the greatest possible credit is $1,050 or $2,100 respectively.
Although the CTC only applies to parents or guardians of minor children, the CDCTC lets you claim aging parents or other disabled relatives.
To qualify, your dependents must be children age 12 or less at the end of the tax year, or a dependent adult family member or spouses unable to care for themselves. The exception is if the person had a gross income of $4,150 or more. The CDCTC is non-refundable. If your credit exceeds your tax bill, you will not receive a refund.
Child Tax Credits are valuable, but not everyone qualifies. If you are unsure whether you are eligible for these tax credits, contact the IRS, a CPA, or Enrolled Agent for reliable advice.