Child Tax Credit: How it works & How to claim it

Legislation update as of Feb. 5, 2024: Hearing news of an increase to the Child Tax Credit in 2024? If new Child Tax Credit (CTC) legislation is approved and you’re eligible, the IRS will make the adjustments automatically as soon as possible.*  

No need to delay your filing! In fact, file now to receive your current Child Tax Credit right away and receive any top off amount later.  

The Child Tax Credit is a valuable tax benefit claimed by millions of American parents with the goal of offsetting the costs of raising a child. The Child Tax Credit is worth up to $2,000 for each qualifying child for 2023 (returns filed in 2024). 

What is the Child Tax Credit?

Simply stated, the Child Tax Credit (CTC) is a tax credit for those with dependent children under age 17 at the end of the tax year. Taking the credit can help lower your tax bill dollar-for-dollar – and depending on how much you owe, it may take your taxes owed down to zero.

Like many tax benefits, you must meet certain requirements before you can claim the Child Tax Credit. These cover details about the child, the relationship between you and the child, and your income.  We’ll get into these details below as we review who qualifies for the Child Tax Credit.

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Is the Child Tax Credit refundable?

The Child Tax Credit is not a refundable tax credit. But, the related credit, called the Additional Child Tax Credit, is refundable. This article covers details for both, but here are the major takeaways:

• The nonrefundable Child Tax Credit can reduce your tax to zero. If the amount of your credit is higher than the taxes you owe, you don’t “get back” the rest of the credit as a refund.
• The refundable Additional Child Tax Credit can reduce your tax to zero and, if there’s credit left over, you’ll get money back. 

How much is the 2023 Child Tax Credit? (also known as 2024 Child Tax Credit)

For 2023 taxes (for returns filed in 2024), the Child Tax Credit is worth $2,000 for each qualifying child. You can claim this full amount if your income is at or below the modified adjusted gross income threshold (see the income phase out information below).

The refundable Additional Child Tax Credit is worth up to $1,600.

Who qualifies for the Child Tax Credit?

Qualifying for the Child Tax Credit is about more than just having a child in your home. In fact, there are seven requirements, or “tests,” that must be met to qualify for this credit.

Let’s dig into them:

1. Age: The child must be under age 17 at the end of the tax year.
2. Dependent status: The child must be allowed as a dependent on your tax return.
3. Relationship: The child must be your own child, stepchild, sibling, or a descendant of your child, stepchild or sibling. It also includes a foster child placed with you by an authorized placement agency.
4. Citizenship: The child must be one of these: a U.S. citizen, a U.S. national, or a U.S. resident.
5. Financial support: The child must not have provided more than half of their own support.
6. Residency: The child must have lived with you for more than half of the tax year. There are exceptions for divorced or separated parents, where the child may live with the other parent for more than half the year, but you still may be able to claim the child.
7. Filing status: The child must not have filed a joint return, except in certain cases where they filed only to claim a refund of withheld income tax or estimated taxes.

On top of these tests, you must also meet income thresholds to take full benefit as the credit phases out for high earners. Read on to understand how the phase out works.

Child Tax Credit income limit and phase-out

The Child Tax Credit amounts change as your modified adjusted gross income (MAGI) increases. In fact, once you reach a certain threshold, the credit amount decreases or phases out.

And the credit amount is reduced $50 for every $1,000 — or fraction thereof — that your modified AGI is more than:

• $200,000 if filing as single, head of household, or qualifying widow(er)
• $400,000 if married filing jointly
• $200,000 if married filing separately

For the purpose of this credit, your modified adjusted gross income (MAGI) is your AGI plus excluded foreign earned income, possession income, and foreign housing.

Additional Child Tax Credit

If your tax liability is very low, the Child Tax Credit may not be the most advantageous for your situation. Or, if you don’t owe any taxes at all, you may not see the benefit of filing a return. While you may not be required to file a return, you could benefit from filing and claiming the refundable Additional Child Tax Credit. 

This is where difference between a refundable vs. non refundable tax credit matters. Claiming the ACTC means you could receive money back. The maximum refundable portion of the Additional Child Tax Credit is limited to $1,600 per qualifying child.

Additional Child Tax Credit qualifications

To qualify, one of these must apply:

• Your earned income must be more than $2,500 for 2023.
• You must have three or more qualifying children.

If you have at least one qualifying child, you can claim a credit of up to 15% of your earned income over the earned income threshold, $2,500.

If you have three or more qualifying children, you can either:

• Claim a refundable credit of the net Social Security and Medicare tax you paid in excess of your Earned Income Credit (EIC), if any.
• Use the 15% method described earlier.

How to claim the Child Tax Credit

You can claim the Child Tax Credit as part of filing your annual tax return with Form 1040. You’ll also need to complete and include Schedule 8812 (Credits for Qualifying Children and Other Dependents). This document will help you figure out how much of the Child Tax Credit/Additional Child Tax Credit you’re eligible to receive.

When to expect your Child Tax Credit refund 

The typical timeframe for the IRS to issue a refund is 21 days or less if you’ve filed electronically and chosen to receive your refund by direct deposit.

However, if you have anything missing or errors on your return, it could require additional review. It’s a good idea to double check your return to avoid this extra processing time. Additionally, it could take longer to receive if you’ve chosen a paper check, of course, as you may encounter longer mail times.

What else should you know about Child Tax Credit requirements and rules

You can’t carry forward any portion of the Child Tax Credit to future tax years. Additionally, you need to claim any other nonrefundable credits you may be eligible for, in a certain order to get the most benefit. In other words, you might need to calculate other credits first to properly apply the credit.

Child Tax Credit considerations for divorced and separated parents

The Child Tax Credit and Additional Child Tax Requirement requirements apply to divorced or separated parents, too. However, if the parents have a qualifying agreement for the noncustodial parent to claim the child, the noncustodial parent who claims the child as a dependent is eligible to claim the Child Tax Credit.

A parent can claim the CTC or ACTC if their filing status is Married Filing Separately.

Getting help claiming the Child Tax Credit

Have questions or ready to file your Schedule 8812? We’re here to help! Whether you file taxes online or with an H&R Block tax pro, we’ll help you uncover every last credit and deduction you deserve.

*As currently written, the bill would direct the IRS to issue any additional refunds as soon as possible to those who have already filed.