The IRS New Child Tax Credit: What to Know for 2024
The rules for the Child Tax Credit have been updated for 2024. See how a change in calculating the refundable portion may affect your family's tax return.
The Child Tax Credit is a federal tax benefit designed to assist American families with the financial costs of raising children. This credit directly reduces the amount of income tax a family owes on a dollar-for-dollar basis. It is not a deduction, which only lowers your taxable income, but a credit that subtracts directly from your final tax bill. This distinction means the credit can significantly lower your tax liability, and if the credit amount is more than the total tax you owe, a portion of it can be issued as a refund.
Determining Your Eligibility for the Child Tax Credit
To qualify for the Child Tax Credit, a child must meet seven tests established by the IRS. The relationship test requires the child to be your son, daughter, stepchild, eligible foster child, sibling, or a descendant of any of these individuals. The age test requires the child to have been under age 17 at the close of the tax year. The residency test mandates that the child must have lived with you for more than half of the year.
Several other dependency-related tests must also be met. The support test stipulates that the child cannot have provided more than half of their own financial support during the year. You must also claim the child as a dependent on your tax return. The child must be a U.S. citizen, U.S. national, or a U.S. resident alien to satisfy the citizenship test. Finally, the child cannot file a joint tax return for the year.
Beyond the child’s qualifications, the taxpayer’s income is a determining factor. The full credit is available to taxpayers whose modified adjusted gross income (MAGI) is not more than $400,000 for those married filing jointly, or $200,000 for all other filing statuses. If your income exceeds these thresholds, the credit amount is gradually reduced, ensuring the benefit is targeted toward low- and middle-income families.
Calculating the 2024 Credit Amount
For the 2024 tax year, the Child Tax Credit is valued at a maximum of $2,000 per qualifying child. This credit is divided into a nonrefundable part and a refundable part. The nonrefundable portion can reduce your tax liability to zero, but you do not receive any of it back as a refund if it exceeds the taxes you owe.
A portion of the credit may be refundable through the Additional Child Tax Credit (ACTC). For 2024, up to $1,700 of the credit per child is refundable. This means that even if you have no tax liability, you could receive up to $1,700 per child as a tax refund. The refundable credit is designed to provide financial assistance to households with little to no federal income tax liability.
The ACTC is calculated based on your earned income. It is determined by taking 15% of your earned income that exceeds $2,500. A change for the 2024 tax year involves how this refundable portion is calculated for families with multiple children, as the $1,700 per-child limit is now applied individually.
For instance, if a family has an earned income of $20,000, their potential ACTC would be ($20,000 – $2,500) 15%, which equals $2,625. If they have two children, they could receive the full $2,625 because it is less than the maximum refundable amount for two children ($1,700 x 2 = $3,400).
Information Needed to Claim the Credit
To claim the Child Tax Credit, you must gather specific information for yourself and each qualifying child. For each child, you will need their full legal name exactly as it appears on their Social Security card, their date of birth, and their Social Security Number (SSN). An Adoption Taxpayer Identification Number (ATIN) can be used for a child in the process of being adopted if an SSN is not yet available.
You will also need to confirm your own tax information, including your filing status for the year and your modified adjusted gross income (MAGI). These figures are needed to determine your eligibility and the precise amount of the credit you can claim. This information is used to complete your main tax form, Form 1040, and the attached Schedule 8812, Credits for Qualifying Children and Other Dependents.
How to Claim the Credit on Your Tax Return
The process of claiming the Child Tax Credit begins with your primary tax form, Form 1040. On this form, you will list each of your qualifying children as dependents, including their SSNs. The total amount of your calculated credit is entered on the designated line of your Form 1040, which directly reduces your tax.
If you are eligible for the refundable portion of the credit, the Additional Child Tax Credit (ACTC), you must complete and attach Schedule 8812. This schedule walks you through the calculation to determine the exact amount of the refundable credit you are entitled to receive based on your earned income. The result from Schedule 8812 is then carried over to the appropriate section on Form 1040.
Once you have completed all forms, you can submit your return. You can file electronically using tax software or through a tax professional, or you can mail a paper copy to the IRS. If you are due a refund from the ACTC, it will be issued via direct deposit or paper check.