There are a number of tax breaks for families with children: The child and dependent care credit, a higher earned income tax credit if you have children, the adoption credit, and 529 plan tax advantages to name a few. But, for many parents, the most important kid-related tax benefit is the child tax credit.
Nevertheless, many parents don’t know the ins and outs of this valuable income tax credit. Plus, there’s a new level of confusion surrounding the credit because of recent enhancements that were only temporary. There’s also a lot of talk lately about bringing back some of the temporary enhancements. As a result of all this, parents aren’t sure which features actually exist now, which ones existed for only one year, and which ones might come back.
As a parent myself, I know how tax breaks like the child tax credit can help a family’s bottom line. So, I’m thrilled to be able to clear up any uncertainty other parents might have about the credit’s current qualifications, amount, refundability, advance payments, and more. With the following answers to common questions about the credit, I hope you’ll be able to take full advantage of the child tax credit when you file your 2023 federal income tax return.
Table of Contents
Do I Qualify for the Child Tax Credit?
The first question parents might have is whether they even qualify for the child tax credit. The short answer is that you’re generally eligible for the credit on your 2023 federal tax return if you have a dependent “qualifying child” who is 16 years old or younger on Dec. 31, 2023.
You (or your spouse if you’re filing a joint return) must also have a valid Social Security number or individual taxpayer identification number (ITIN) by the due date of your return (including any tax return filing extensions).
To be your dependent, the child must be either your:
– Foster child
– A descendant of any of the above (e.g.,, your grandchild, niece, or nephew)
You also can’t claim a child as your dependent if you (or your spouse you’re married filing jointly) can be claimed as a dependent on someone else’s tax return.
WealthUp Tip: An adopted child, or a child placed with you for legal adoption, is treated as your own child for purposes of the child tax credit.
Is My Child a “Qualifying Child” for Child Tax Credit Purposes?
In addition to the age (under 17 years of age) and dependency requirements, your child must satisfy several other requirements for you to claim the child tax credit for the 2023 tax year.
To be a “qualifying child” for purposes of the child tax credit, your dependent child generally must also:
– Provide no more than half of their own financial support during the year
– Live with you for more than half of the year
– Not file a joint tax return for the tax year, unless for the sole purpose of claiming a refund of withheld income taxes or estimated taxes paid during the year
– Have a valid Social Security number by the due date of your return (including extensions)
– Be a U.S. citizen, U.S. national, or U.S. resident alien
The IRS also has an online tool to help you determine if your child is a “qualifying child” for purposes of the child tax credit.
WealthUp Tip: If your dependent child (or another dependent) doesn’t satisfy these requirements, you still might be able to claim the “other dependents” tax credit for the child (e.g., for a dependent child who is 17 or older). The credit is worth up to $500 per qualifying dependent.
Can I Claim the Full Child Tax Credit If My Child Was Born During the Year?
Yes, you can claim the full child tax credit if your child is born (or adopted) during the year. Assuming both you and your child qualify for the credit, it doesn’t matter if your child is born at 12:01 a.m. on Jan. 1 or at 11:59 p.m. on Dec. 31—or any time in between.
This is different from the upper age limit requirement. For example, if your child turns 17 at any point during the year, you can’t claim the child tax credit for that child for that tax year.
Related: What Tax Bracket Are You In?
Who Can Claim the Child Tax Credit When the Parents Are Divorced or Separated?
In most cases, the custodial parent can claim the child tax credit when a qualifying child’s parents are divorced or separated. That’s because a child must live with you for more than half of the year in order for you to claim the credit for that child.
However, a non-custodial parent can claim the credit if certain requirements are met. For example, the parents must either:
– Be divorced or legally separated under a decree of divorce or separate maintenance
– Be separated under a written separation agreement
– Live apart during the last six months of the year (regardless of any previous or current marital status)
The qualifying child must also receive more than half of his or her support for the year from the parents, and be in the custody of one or both parents for over half of the year.
Finally, the custodial parent must state in writing that he or she won’t claim the child as a dependent for the year. The non-custodial parent must also attach the statement to his or her federal tax return.
Related: Best Credit Cards for Teens
Who Can Claim the Child Tax Credit If a Child Is a Qualifying Child for More Than One Person?
A child can be a “qualifying child” for more than one person. For example, if a child lives with unmarried parents for the entire year, or lives full-time with one parent and a grandparent, then multiple people might be able to claim the child tax credit for the child.
In that case, the IRS uses the following tie-breaker rules to determine who can claim the credit for that particular child:
– If only one person is the child’s parent, that parent can claim the credit.
– If the parents file a joint return together, they can claim the credit.
– If the parents don’t file a joint return together but both of them can claim the child as a qualifying child, the parent with whom the child lived with longer during the year can claim the credit.
– If the parents don’t file a joint return together but both of them can claim the child as a qualifying child, and the child lived with each parent for the same amount of time, the parent who had the higher adjusted gross income (AGI) for the year can claim the credit.
– If neither parent can claim the child as a qualifying child, the person who had the highest AGI for the year can claim the credit.
– If a parent can claim the child as a qualifying child but no parent actually does so, the person who had the highest AGI for the year can claim the credit, but only if that person’s AGI is higher than the highest AGI of any of the child’s parents who can claim the child.
How Much Is the Child Tax Credit?
The child tax credit is worth up to $2,000 per qualifying child. There is no limit on the number of qualifying children for which you can claim the credit. So, for example, if you have 10 kids who all qualify for the child tax credit, then you can claim a total credit of up to $20,000.
However, as I’ll discuss in a moment, if your income is above a certain amount, your child tax credit is reduced—possibly to zero.
In addition, keep in mind that the maximum credit amount is scheduled to drop down to $1,000 per qualifying child starting in 2026. The Tax Cuts and Jobs Act of 2017 doubled the amount of the child tax credit, but only temporarily.
How Do the Child Tax Credit Income Limits Work?
As mentioned earlier, your child tax credit might be phased-out for certain high-income taxpayers. If your modified AGI is greater than $200,000 ($400,000 for married couples filing a joint tax return), then your credit amount is reduced by $50 for each $1,000 (or fraction thereof) you’re over the income limit.
For purposes of the child tax credit, “modified AGI” is the AGI reported on your tax return, plus any:
– Foreign earned income exclusion
– Foreign housing exclusion or deduction
– Exclusion of income for residents of American Samoa or Puerto Rico
As an example of how the income limits work, assume a married couple has two qualifying children and file a joint tax return for the 2023 tax year. If their 2023 modified AGI is $415,000, their child tax credit will be reduced by $750 ($50 x 15 = $750). So, instead of the maximum credit of $4,000 for their two children, the couple’s child tax credit is only $3,250 ($4,000 – $750 = $3,250).
Is the Child Tax Credit “Refundable”?
There are three basic types of tax credits: fully refundable, non-refundable, and partially refundable credits.
– A fully refundable tax credit can reduce the tax you owe below $0 and trigger a tax refund. For example, if you owe $1,000 in tax and qualify for a $1,200 fully refundable credit, you’ll get a $200 tax refund.
– With a non-refundable tax credit, the best it can do is reduce your tax to $0. For instance, if you owe $1,000 in tax and qualify for a $1,200 non-refundable credit, you won’t owe taxes but you won’t get a tax refund, either. In this case, you essentially end up losing part of the credit.
– Then there’s partially-refundable tax credits. As the name suggests, some, but not all, of a partially-refundable credit can trigger a tax refund. As an example, if you owe $1,000 in tax and qualify for a $1,200 credit, you might only get a $100 tax refund.
The child tax credit is a partially-refundable credit. However, the refundable portion—which the Internal Revenue Service calls the “additional child tax credit”—is capped and not everyone can get it.
For instance, the additional child tax credit is limited to $1,600 per qualifying child for the 2023 tax year ($1,700 for 2024).
It’s also only available if your “ordinary” child tax credit is greater than what your tax liability would otherwise be without the credit. This helps people who stand to lose part of their credit because their federal tax bill is generally low, which is typically people with lower incomes.
Finally, you must have at least $2,500 of earned income during the year to claim the refundable portion on your tax return. Earned income generally includes all the taxable income you get from your employer, such as wages, salary, and tips. If you’re self-employed, net earnings from your business also count as earned income.
WealthUp Tip: The earned income threshold will rise to $3,000 in 2026. The amount was only temporarily reduced to $2,500 by the Tax Cuts and Jobs Act.
Related: Related: Is Summer Camp Tax Deductible?
How Do I Claim the Child Tax Credit?
You must complete Schedule 8812 (Form 1040) to calculate the amount of your child tax credit. This includes any refundable amount claimed as the additional child tax credit. (Schedule 8812 is also used to calculate the credit for other dependents.)
From there, transfer the total amount of your child tax credit (non-refundable portion) and any credit for other dependents to Line 19 of Form 1040. If you qualify for the additional child tax credit, the amount is recorded on Line 28 of Form 1040. (Line numbers are based on the most recent draft version of the 2023 Form 1040).
A word of caution about claiming the child tax credit if you’re not eligible: If you mistakenly claim the credit and the IRS later determines that your error was “due to reckless or intentional disregard of rules and regulations,” you won’t be allowed to claim the credit for two years. If you claim the credit “due to fraud,” you won’t be allowed to claim the credit for 10 years. You might also be hit with a penalty.
In addition, you generally must complete Form 8862 if the IRS denies or reduces a claim for the child tax credit for any reason other than a math or clerical error, and you’re later eligible for and want to claim the credit.
Related: What’s Your Standard Deduction?
When Will I Get a Child Tax Credit Refund?
You might have heard that tax refunds are delayed for people claiming the child tax credit. Well, it’s true—to a certain extent.
As an anti-fraud measure, the IRS is prohibited by law from issuing a refund until mid-February 2024 if the additional child tax credit (i.e., the refundable portion) or earned income tax credit is claimed on your 2023 tax return. This applies to the entire refund, not just the portion associated with the child tax credit or earned income tax credit.
However, if you file your return after mid-February, then there will be no additional delay in sending out a refund. (It typically takes the IRS less than three weeks to process an electronic, direct deposit refund payment to your bank account.)
What Enhancements Were Made to the Child Tax Credit for the 2021 Tax Year?
To help families financially impacted by the COVID-19 pandemic, the American Rescue Plan Act of 2021 made significant changes to the child tax credit. However, those changes were only effective for the 2021 tax year.
The credit enhancements included:
– Increasing the credit amount from $2,000 to $3,000 for children who were at least six years old and $3,600 for children five years old and younger
– Permitting the credit for dependent children who were 17 years old
– Making the credit fully refundable for people who lived in the U.S. for more than half of 2021 (including removing the $2,500 refundability threshold)
– Sending monthly advance payments of half of the credit amount from July to December of 2021 (the rest was claimed on your 2021 tax return)
Although not necessarily an enhancement, the 2021 credit was also phased out in two steps. First, the “extra” credit amount (i.e., the $1,000 increase for children six to 17 years old and the $1,600 increase for children 5 and under) was gradually reduced—but not below $2,000—for families with a modified AGI over $150,000 for joint filers, $112,500 for head-of-household filers, and $75,000 for other taxpayers. Second, the remaining credit was then phased-out for taxpayers with modified AGI exceeding the regular $200,000 threshold ($400,000 for joint filers).
None of these changes are in effect for the 2023 tax year.
Related: Best Investments for Teenagers
Will the Child Tax Credit Amount Go Up in 2024?
Unlike some other tax credits and deductions, the child tax credit isn’t adjusted upward each year to account for inflation. There also aren’t any legislative changes already in place that will boost the credit next year or further down the road.
However, there is some bipartisan support in Congress to raise the credit amount—perhaps to the same level as the 2021 child tax credit (as described earlier). There’s also some talk in Washington, D.C., about a year-end tax bill that would increase the child tax credit in exchange for the extension of certain business tax breaks. But given the general gridlock in Congress, parents shouldn’t hold their breath waiting for this to happen.
If legislation increasing the child tax credit isn’t enacted before the end of 2023, it’s not likely to move forward in 2024, which is an election year. However, depending on who controls the White House and Congress after the 2024 elections, increasing the credit amount in 2025 is possible. Perhaps, at the very least, the scheduled reduction to $1,000 per qualifying child in 2026 that I noted earlier will be repealed or delayed.
Will Child Tax Credit Advance Monthly Payments Return?
While there’s some reason to believe that the child tax credit amount might be increased in the near future, parents shouldn’t be optimistic about seeing monthly advance payments again any time soon.
A resumption of the monthly payments was included in the sweeping Build Back Better Act, which eventually stalled in the U.S. Senate. The legislation was primarily held up by Sen. Joe Manchin (D-W.Va.), who repeatedly cited extension of the 2021 child tax credit enhancements (including the monthly payments) as one of his chief concerns.
The advance payments were also seen as a burden for the IRS, which was responsible for sending checks or electronic payments to eligible taxpayers. While the tax agency generally handled the task well, sending periodic payments is not in its wheelhouse (unlike, say, the Social Security Administration).
Although President Biden and some members of Congress would still like to see the payments return, it faces an uphill battle. As with increased credit amounts, the ultimate fate of renewed monthly child tax credit payments will depend on who controls the White House and Congress after the 2024 elections.