If you are a parent in the United States, the Child Tax Credit can dramatically reduce your tax bill, potentially cutting your payment or even increasing your return.
In 2024, this credit is worth up to $2,000 per qualified child under the age of 17, and the same amount will be applied to 2025 tax returns. Let’s go over what this benefit comprises, the requirements you’ll need to complete, and the methods for properly filing it.
The Child Tax Credit applies directly to the taxes you owe, decreasing them dollar for dollar. This implies that if you have a qualifying child and are eligible for a $2,000 credit, you can use it to decrease your tax burden.
How the Child Tax Credit works in 2024 and 2025
However, this credit is non-refundable, which means it will not be added to your return if your tax liability is zero. However, there is also the Additional Child Tax benefit (ACTC), which is a refundable extension of the primary benefit.
The ACTC can be worth up to $1,700 per kid, allowing some taxpayers to earn an additional return even if they owe very little or nothing in taxes. This type of credit can be extremely beneficial to families who, after paying off their tax bill, may still get a portion of the credit as a return.
Eligibility requirements for the Child Tax Credit
To claim this credit, both you and your child must meet certain conditions. Here’s a rundown to help you determine if you qualify:
- Child’s age: Each child must be under 17 during the tax year to be eligible for the credit.
- Residency and legal status: Qualifying children must be U.S. citizens, U.S. nationals, or legal residents with a valid Social Security Number. This requirement is essential for eligibility.
- Family relationship: Eligible children must have a recognized familial relationship with you, such as being your biological child, stepchild, sibling, half-sibling, niece, or grandchild. This also includes descendants of these relatives as long as they meet other criteria.
- Financial support: To qualify, the child must not have paid more than half of their own living expenses during the year.
- Living arrangements: You must have lived with the child for more than half of the tax year. In special circumstances, such as in cases of divorce, the IRS provides specific guidelines on how this requirement applies.
- Income limit: This credit has income thresholds. If you file jointly (married), the credit begins to phase out when your Modified Adjusted Gross Income (MAGI) exceeds $400,000. For all other filers, the threshold is $200,000. The credit is reduced by $50 for every $1,000 over these limits.
How to take advantage of the Additional Child Tax Credit (ACTC)
If your Child Tax Credit amount exceeds your tax liability, you may be eligible to claim the Additional Child Tax Credit. This refundable credit of up to $1,700 per child may result in an additional refund.
Here’s an example to help clarify: Assume your tax bill is $1,000, and you are eligible for a $2,000 credit. Applying the regular credit reduces your tax burden to zero. However, you can still claim a portion of the increased credit and potentially receive a refund of up to $1,700.
Steps to claim the Child Tax Credit and ACTC
To claim these benefits on your tax return, follow a simple procedure. Begin by identifying your children as dependents on the 1040 form. Then you’ll need to fill out Schedule 8812, which will compute the exact number of credits you’re eligible for. This schedule is required to determine the credit’s value and must be included with your tax return.
The IRS handles refunds that contain credits such as the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) at the end of February. This scheduling helps to prevent delays in crucial refund payments to families. Additionally, the IRS provides detailed, step-by-step directions for filling out Schedule 8812, which is a useful resource for taxpayers completing it for the first time.
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