What Is the Child Tax Credit?

The Tax Cuts and Jobs Act of 2017 (TCJA) significantly increased the amount of the child tax credit for the 2018-2025 tax years. The maximum amount of this credit is $2,000 per qualifying child.¹

The child tax credit is for any taxpayer who provides more than half the financial support for a child, sibling, grandchild, niece, nephew, or lawfully fostered or adopted child. You must include the child’s Social Security number when you file your return. Seven requirements must be met to be a qualifying child, according to the IRS²:

1. Be younger than 17 on the last day of the tax year, which is noteworthy since many consider 18 as the cut-off for childhood.
2. Be the taxpayer’s son, daughter, stepchild, foster or adopted child, brother, sister, stepbrother, stepsister, half-brother or half-sister, or a descendant of them.
3. The child must have not provided more than half of their own support for the year.
4. Be claimed as their dependent on the taxpayer’s federal return.
5. The child cannot file a tax return for the same year with the status married filing jointly, unless the only reason they are filing is to claim a refund.
6. Be a U.S. citizen, a U.S. national, or a U.S. resident alien.
7. In most cases, the child must have lived with the taxpayer for more than half the year.

If a child lived in more than one household during the tax year, it is usually the parent with primary custody who takes the tax credit. In cases of joint custody, formal arrangements should be made for when each parent can claim the credit, such as alternating years.³

The unfortunately named additional child tax credit is not about an additional child. Instead, it refers to the part of the child tax credit that is refundable and requires you to fill out an extra form. In tax language, a “refundable” tax credit can get you money from the IRS whether or not you paid any tax in the first place. Essentially, that part of the credit becomes a government grant. Up to $1,400 of each child tax credit can be refundable, calculated as a percentage of your earned income.⁴ For 2020 tax returns, you have the option to use the higher of your 2019 or 2020 earned income, to maximize this credit.⁵ If you have three or more children, there is a specific formula that may be used to determine the amount of your additional child tax credit.⁶ To learn about other kinds of refundable tax credits, read, “What Are Refundable Tax Credits?”

The TJCA significantly raised the income phase-out thresholds for the child tax credit, through the end of 2025. The child tax credit starts phasing out at $200,000 of modified adjusted gross income (MAGI) for single, head of household, and qualifying widow(er) filers, or $400,000 for married couples filing jointly. MAGI is your adjusted gross income but with certain exclusions added back in. For a better understanding, read “What Is Adjusted Gross Income?” and “What Is Modified Adjusted Gross Income?.”

The $2,000 credit phases out gradually, falling by $50 for every $1,000 of MAGI over the threshold.⁷ If you’re subject to the $200,000 threshold, the entire credit is phased out by $240,001 income. For married taxpayers filing jointly, the credit is wiped out at $440,001.

Just about all the major tax preparers and filing services provide online tools to help you determine whether your dependents qualify for the child tax credit by answering a few questions. As part of your filing, they will also select the proper forms and determine how much your credit might be. If you’re a do-it-yourselfer, like my husband and me, you can find IRS Schedule 8812 and its instructions on the IRS website.⁸

Everything I’ve discussed so far relates to your federal tax liability. Six states offer a state-level version of the federal child tax credit, each with their own program name, formula and eligibility requirements. They are:¹⁰

1. California
2. Colorado
3. Idaho
4. New York
5. North Carolina
6. Oklahoma

The TCJA has a separate “family” tax credit for other dependents like older children, qualifying relatives, and dependents who have an Individual Taxpayer Identification Number (ITIN) rather than a Social Security number. You can’t double dip: this $500 non-refundable credit can only be used for qualifying dependents who are not eligible for the child tax credit.¹⁰

Children who qualify for the family credit must be over 17 years old, and can be up to 24 for full time students, and meet many of the same requirements as the child tax credit. Qualifying relatives do not need to be related to you but must live with you full time and have less than $4,300 in income, among other requirements.¹¹ Lastly, dependents with an ITIN, like a foreign national or nonresident alien, can qualify for the family credit.¹²