What you need to know about Child Tax Credit 

Summary 

What is Child Tax Credit? 

Child Tax Credit applies a credit to the income taxes of people with dependent children under the age of 17, potentially earning them a refund on their federal tax return. 
It’s important to note that a tax credit is different from a tax deduction. Whereas a deduction reduces your taxable income, a tax credit lowers how much you actually owe in taxes. 

The Child Tax Credit doesn’t count as a universal benefit, so not everyone is eligible to receive it. To claim the credit, you must meet several criteria, which are outlined below.  

It’s also a tax break that families can overlook. Those who receive it, however, can save money on their tax bill from the Internal Revenue Service (IRS). 

How does Child Tax Credit Work? 

The base credit is worth $2,000 for each of your qualifying dependents.  

However, this figure has several limits, which means that the amount you receive, if anything, is determined on a case-by-case basis according to the so-called Modified Adjusted Gross Income (MAGI) levels (see below). 

As a rule of thumb, the more a Child Tax Credit applicant earns, the less the credit will be worth until the tax break is reduced to zero. 

Who qualifies for Child Tax Credit? 

According to the IRS, several criteria apply when you’re claiming Child Tax Credit on behalf of a dependent. 
For example, each qualifying child must be a US citizen, US national, or resident alien and requires a Social Security number that is valid for work in the US.  

In addition, the dependent must: 

The Child Tax Credit is worth up to $2,000 per dependent for the 2024 tax year (taxes filed in 2025). 

However, you will only qualify for the full credit if your MAGI is: 

Your credit amount is reduced by $50 for each $1,000 of income exceeding the threshold. 

When was the Child Tax Credit introduced? 

The tax break was originally approved by Congress and then signed into law in 1997 by then President Bill Clinton. 
 
Over the intervening period, the credit has been extended in a number of ways.  

Due to its nature, it is often a focus of wider political debate. 

What’s the difference between a refundable and non-refundable benefit? 

Child Tax Credit is one of a number of non-refundable tax benefits, but what does this mean?  

For example, if you qualify for a $700 non-refundable credit.  

In this scenario, the taxes you owe would be reduced by $700. But if you only owed $600 in taxes, the surplus of $100 in credit ($700 minus $600) would, in effect, be lost. 

In contrast, a separate tax benefit called Additional Child Tax Credit is classed as a refundable tax benefit.  

Using the above example, but for the Additional Child Tax Credit, not only would a claimant’s tax bill be reduced by $600, but the remaining balance of $100 would be refunded to the claimant as well. 
 
See below for information about how the Additional Child Tax Credit works. 

How do I claim Child Tax Credit? 

Assuming your children meet the qualifying criteria, you can claim Child Tax Credit by including their names on your Form 140 (US Individual Income Tax Return) from the IRS and also completing and attaching the Schedule 8812 Form (Credits for Qualifying Children and Other Dependents). 

To help would-be claimants work out whether they are eligible to claim Child Tax Credit, the IRS provides an Interactive Tax Assistant. 
 
As part of the application process, you may be asked for further details.  

The IRS also supplies information for previously unsuccessful Child Tax Credit applicants who subsequently wish to try again. 

What is the Additional Child Tax Credit? 

If an applicant qualifies for Child Tax Credit but is unable to take full advantage of the tax break because, say, they don’t owe taxes or owe less than the credit being offered, it might be possible to obtain a partial cash-in-hand refund by claiming Additional Child Tax Credit. 

To qualify, the usual Child Tax Credit criteria need to be met.  

The IRS works out your Additional Child Tax Credit by multiplying your earned income above $2,500 by 15%.  

You are then able to claim that amount, or the amount of Child Tax Credit to which you were entitled but couldn’t use, whichever figure is less. 
 
The maximum refund for the 2024 tax year is limited to $1,700 per qualifying dependent. 

What is the state-level Child Tax Credit? 

 
In addition to the tax break offered at the federal level, about a third of US states each offer their own version of Child Tax Credit. 
 
According to the National Conference of State Legislatures, 16 states fell into this category as of November 2024: 

*States that define the benefit as a refundable benefit, as detailed above 

The NCSL states that eligibility requirements differ from state to state.  

For example, Oklahoma limits its Child Tax Credit to families earning less than $100,000 a year.  

Meanwhile, Colorado, Illinois and New York impose age restrictions for qualifying children: under the age of 6 in Colorado, under the age of 12 in Illinois, and at least the age of 4 in New York. 

Get expert financial advice 

Taxes and tax planning can be complicated.  

If you’re unsure about various aspects of your arrangements, it’s best to speak to a qualified financial advisor who can analyze your needs and prepare a long-term financial plan for you and your family. 

Unbiased can match you with a financial advisor best suited to meet your unique needs.  

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