The Child Tax Credit is a financial support scheme for families with dependent children under 17 years of age. The Child Tax Credit for 2024 and 2025 is $2,000 per child but is non-refundable by up to $1,700. Knowing the specific requirements and process to claim such credit ensures families do not lose significant benefits, aside from mistakes as they apply.
What is the child tax credit?
Taxpayers with dependents who qualify claim the Child Tax Credit as reductions to their tax liability dollar for dollar. This credit was introduced predominantly as a measure to lighten the burden of raising children and ultimately phases out at higher income levels based on Modified Adjusted Gross Income (MAGI). For joint filers, the credit is phased out once the joint MAGI exceeds $400,000, while for other filers, the amount reduces up to $200,000. Beyond such thresholds, the child’s credit is reduced by $50 for every $1,000 income above the threshold until it exhausts.
For the year 2024, the refundable portion contains a maximum ceiling of $1,700 under the additional child tax credit (ACTC). Refundable credits are the most beneficial credits of a refundable nature because they apply to families whose tax liability is lower than what they are entitled to claim through the Child Tax Credit. If families qualify for it, they would receive a refund for the variance. However, the ACTC would require some eligibility criteria, such as having earned income above $2,500 and claiming the amount by filling out IRS Schedule 8812.
According to an announcement from the IRS, the credit limits and thresholds will remain the same for the year 2025. However, presumably because Congress would not intervene, in the year 2026, the CTC would revert to its pre-2017 levels, which would reduce a maximum credit limit of $1000 with ingrained enormous reductions in the income thresholds.
Eligibility and claiming process
To qualify for the CTC, families must meet several key requirements:
- Age: The child must be under 17 at the end of the tax year.
- Relationship: The child must be a biological, step, or foster child, or a descendant such as a grandchild, niece, or nephew.
- Dependent Status: The child must be claimed as a dependent on the taxpayer’s return and cannot file a joint return unless solely for a tax refund.
- Residency: The child must live with the taxpayer for more than half the year. Exceptions may apply.
- Financial Support: The taxpayer must provide more than half of the child’s financial support during the year.
- Citizenship: The child must be a U.S. citizen, U.S. national, or U.S. resident alien with a valid Social Security number.
- Income: Taxpayers must not exceed the MAGI limits to claim the full credit.
To claim the credit, taxpayers must complete Form 1040 and attach Schedule 8812, which calculates the credit amount, including any refundable portion. Tax software often simplifies this process through guided prompts. For those with qualifying income, free tax filing options are available through IRS Free File.
Additional considerations
Every family should be careful in preparing tax forms because errors may lead to delay, penalties, or even denial of the credit. If the IRS disallows an income tax claim of credit for the child, taxpayers will probably be required to repay any incorrect amount plus interest; in future applications, he/she will be required to file Form 8862. If there are additional permission claims, they may penalize them with up to 20% of the false credit amounts.
Depending on the state where you live, you may also qualify for state child tax credits. States that give additional credits include California, Colorado, and New York. Taxpayers need to check with their state tax department for any additional benefits.
So last, but not least, the ACTC should know that, as per the federal act, the IRS cannot issue refunds before the mid-February period even if returns are filed before this time. Families can use IRS ‘Where’s My Refund” to know the status of their refunds.
The Child Tax Credit is still a very important source of income for families, and getting to know the requirements as well as filling it out correctly is key to ensuring that families receive their benefits timely without any problems.
