Contributed by KristineS, FreeTaxUSA Agent, Tax Pro
Congress is very aware raising children costs a lot of money. Over the years, they've passed various tax laws to benefit families with children. One of the most beneficial of these laws is the Child Tax Credit.
Child Tax Credit is split into two parts
- The non-refundable child tax credit (CTC)
- The refundable additional child tax credit (ACTC)
You may have even noticed that as your children grow older and graduate high school, your tax refund or tax due changes, and is most likely related to this credit.
If you have children turning 17 at any time during the year, including December 31st, be aware you’ll lose the child tax credit and may need to adjust your tax withholdings to make up the difference to avoid owing taxes come tax filing season.
The child tax credit is a per child amount that has ranged from $1,000 to $3,600 over the past decade. As of calendar year 2024, the maximum child tax credit amount is to $2,000 per qualifying child.
The additional child tax credit is also a per child amount and in 2024, is limited to $1,600 per child.
Qualifying children for the credit must meet certain criteria
- Younger than 17 at the end of the year.
- Related to the taxpayer as a son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, grandchild, niece, or nephew.
- Claimed as a dependent.
- A child who did not provide more than half of their own support.
- A child who lives with you for more than half of the year.
- A US citizen, national, or a resident alien.
- A child who does not file a joint return (unless they only file a joint return to claim a refund of taxes paid or taxes withheld).
You're eligible for the additional child tax credit if the following apply
- You have earned income (income from wages or self-employment income) and certain disability income items of at least $2,500. Income from unemployment, social security income, child support, alimony, retirement income, and investment income does not qualify.
- Your income needs to be below the phaseout level to be eligible for the full child tax credit. For married joint filers, the child tax credit is phased out at a rate of $50 for every $1,000
s (and every portion of $1,000) that your income is over $400,000. For all other filers, the phaseout limit is $200,000. For example, a married couple with $402,500 of modified adjusted gross income (MAGI) will have their child tax credit reduced by $150 ($100 for the first $2,000 over the threshold and another $50 for the next $500 over the threshold.)
Applying the credit to your return
The available amount of credit can be applied to a tax return in one of two ways. Here below we’ve included examples to help you understand.
The non-refundable portion of the credit (CTC)
If the total child tax credit is less than the tax on the return, all the available child tax credit amount is used as the non-refundable portion. If the total available child tax credit amount is more than the tax on the return, the child tax credit is limited to the tax amount.
For this sample taxpayer, the tax due is $2887 as shown on line 16. Our sample taxpayer has one qualifying child and is eligible for the full $2000 of CTC as shown on line 19. All $2000 of CTC is applied and lowers the tax due dollar for dollar.
The refundable portion of the credit
If the child tax credit amount is more than the tax, you may qualify for some additional child tax credit which is the refundable portion of the credit. A way to think of ACTC is as “leftover credit”
For this sample taxpayer below, the tax due is $5529 as shown on line 16. Our sample taxpayer has three qualifying children and is eligible for the full $6000 of CTC. However, only $5529 of the eligible $6000 CTC is allowed on line 19 to reduce the tax to zero.
You can never have less than $0 tax due.
The difference of $471 is ‘leftover’ and becomes the refundable ACTC and is credited on line 28 which becomes part of this sample taxpayer’s refund.
Checking the math, we used $5529 (non-refundable) CTC + $471 (refundable) ACTC = $6000 total available child tax credit.
Remember, the additional child tax credit is limited to $1,600 per child in 2024. The main difference between the ACTC and CTC is that ACTC is refundable. You're eligible to receive this credit as part of your refund, even if you have $0 tax due.
