Did the Child Tax Credit Amount Go Down?

The Child Tax Credit amount decreased for many families after the 2021 tax year. This change was not from a new law but rather the expiration of a temporary, one-year expansion provided by the American Rescue Plan Act of 2021. That act had increased the credit’s value and made it available to more families as economic relief.

With the expiration of these temporary enhancements, the rules and credit amounts reverted to the standards that were in place previously. This means the total credit available per child is lower, and the structure for receiving the credit has returned to its pre-2021 form.

Comparing Child Tax Credit Amounts

The difference between the Child Tax Credit in 2021 and in subsequent years is substantial. For the 2021 tax year only, the credit was increased from $2,000 to $3,600 for each child under age 6 and to $3,000 for children between ages 6 and 17. This expansion also uniquely included 17-year-olds, who are not eligible under the standard rules.

A feature of the 2021 credit was its full refundability, meaning families could receive the entire credit as a refund, even if they owed no federal income tax. Half of the total credit was also distributed in advance monthly payments from July to December 2021.

Following the expiration of these enhancements, the Child Tax Credit returned to its standard amount of $2,000 per qualifying child. The advance monthly payments ceased, and the credit is no longer fully refundable. A portion of the credit can be received as a refund through the Additional Child Tax Credit, but it is subject to different calculations.

Current Eligibility Rules for the Child Tax Credit

To claim the Child Tax Credit under current rules, a child must meet several specific criteria to be considered a “qualifying child.” The IRS applies a series of tests to determine eligibility, and each one must be satisfied. Both the taxpayer and the child must also have a Social Security Number (SSN) valid for employment in the U.S.

The primary eligibility tests are:

• The child must be under age 17 at the end of the tax year.
• The child must be the taxpayer’s son, daughter, stepchild, eligible foster child, sibling, or a descendant of any of these individuals, like a grandchild. An adopted child is treated as the taxpayer’s own child.
• The child must have lived with the taxpayer for more than half of the year, with exceptions for temporary absences like school or medical care.
• The child cannot have provided more than half of their own financial support during the year.
• The child cannot file a joint tax return for the year, unless it is only to claim a refund of taxes paid.

Income Limitations and Calculating the Credit

A taxpayer’s income impacts the amount of the Child Tax Credit they can receive. The credit begins to phase out for taxpayers with a Modified Adjusted Gross Income (MAGI) above certain thresholds. For married couples filing a joint return, the phase-out begins at $400,000, and for all other filing statuses, the threshold is $200,000.

The credit is reduced by $50 for every $1,000 that a taxpayer’s MAGI exceeds the applicable threshold. For example, a single filer with one child and a MAGI of $210,000 would see their potential $2,000 credit reduced by $500.

For families who owe little to no income tax, a portion of the credit may be refundable through the Additional Child Tax Credit (ACTC). The refundable amount is calculated as 15% of the taxpayer’s earned income above $2,500, up to a maximum of $1,700 per child for the 2024 tax year. A taxpayer must have at least $2,500 in earned income to claim the ACTC.

If a dependent does not meet the requirements for the Child Tax Credit, the taxpayer may still be able to claim the non-refundable $500 Credit for Other Dependents.

How to Claim the Child Tax Credit

Taxpayers claim the Child Tax Credit as part of their annual tax filing process on Form 1040, U.S. Individual Income Tax Return. You do not need to fill out a separate application. On Form 1040, you must list each dependent, including their Social Security Number, and indicate they qualify for the credit.

The actual calculation is performed on Schedule 8812, Credits for Qualifying Children and Other Dependents. This schedule determines the exact amount of the non-refundable credit and any refundable Additional Child Tax Credit (ACTC) for which you are eligible.

After completing Schedule 8812, the final credit amount is transferred to the appropriate line on Form 1040. The non-refundable portion of the credit reduces your tax liability, while the refundable portion is added to your total payments. This can result in a larger tax refund or a lower amount of tax owed.