What Does Child Tax Credit Mean and How Does It Work?
Understand how the Child Tax Credit works, who qualifies, and how it impacts your tax return, including income limits and refundable amounts.
The Child Tax Credit (CTC) helps families manage the costs of raising children by reducing tax liability or providing a refund. The credit has evolved over the years, making it essential for eligible families to stay informed about current rules.
Qualifying Children
To claim the CTC, a child must meet specific IRS criteria. They must be a direct family member—such as a son, daughter, stepchild, sibling, or grandchild. The child must be under 17 at the end of the tax year. While past expansions briefly raised the age limit, it currently remains at 16.
The child must also have lived with the taxpayer for more than half the year. Temporary absences for school, medical treatment, or military service do not affect eligibility as long as the child’s primary residence remains with the taxpayer.
Income Thresholds
The amount a family can receive depends on income. The credit begins to phase out when modified adjusted gross income (MAGI) exceeds $200,000 for single filers and heads of households, and $400,000 for married couples filing jointly.
For every $1,000 over these limits, the credit is reduced by $50. For example, a couple with a MAGI of $420,000 would see a $1,000 reduction. Families with very low incomes may not owe enough in taxes to fully benefit, but they may still qualify for the refundable portion, known as the Additional Child Tax Credit (ACTC).
Refundable Amount
A portion of the CTC is refundable, allowing some families to receive money back even if they owe little to no tax. The maximum refundable amount per child in 2024 is $1,600.
To qualify, families must have at least $2,500 in earned income. The ACTC is calculated as 15% of earned income above this threshold, up to the $1,600 cap per child. For instance, a taxpayer earning $15,000 has $12,500 in qualifying income ($15,000 – $2,500). Fifteen percent of that equals $1,875, but the refund is capped at $1,600 per child.
Families with multiple children may receive a larger total refund, though the per-child limit still applies. Outstanding federal debts, such as unpaid taxes or student loans, may reduce the amount received.
How to File
Claiming the CTC requires filing a federal tax return, even for those who don’t typically file due to low income. The credit is reported on Form 1040 or 1040-SR, with Schedule 8812 used to determine eligibility and calculate any refundable portion.
A Social Security number (SSN) is required for each qualifying child. The IRS does not accept Individual Taxpayer Identification Numbers (ITINs) for this credit. Documentation like birth certificates or school records may be required to verify residency if requested by the IRS.
Filing electronically with direct deposit is the fastest way to receive a refund. The IRS generally processes e-filed returns within 21 days, while paper returns can take six weeks or more. Refunds involving the ACTC may be delayed until mid-February due to fraud prevention measures.
Interplay With Other Credits
The CTC interacts with other tax credits, and understanding these relationships can help taxpayers maximize their benefits.
Earned Income Tax Credit
The Earned Income Tax Credit (EITC) is another refundable credit for low- to moderate-income workers, particularly those with children. While the CTC phases out at higher incomes, the EITC provides a sliding scale of benefits based on earnings and family size. Taxpayers eligible for both credits can claim them together for a larger refund. However, returns claiming both may face processing delays due to fraud prevention measures.
Child and Dependent Care Credit
For parents with childcare expenses, the Child and Dependent Care Credit (CDCC) provides additional tax relief. This credit covers a percentage of qualifying childcare costs, with a maximum benefit of $1,050 for one child or $2,100 for two or more. Unlike the CTC, which provides a fixed amount per child, the CDCC is based on actual expenses. However, it is nonrefundable, meaning it only offsets tax liability and does not result in a refund if no taxes are owed.