The child tax credit is a credit available to taxpayers with a qualifying child who owe income taxes. The credit is not a refundable credit; it only applies to actual taxes owed. This means that if you don't owe taxes, you don't get the credit, because you have no tax liability to reduce. The amount you're allowed to apply depends upon your income, whether your child qualifies and how much income tax you owe for the year. The tax credit was increased beginning with the 2018 tax year by the Tax Cuts & Jobs Act, signed into law in December 2017.
The child tax credit is considered a non-refundable credit. This means that you cannot use this particular credit to lower your tax liability unless you owe taxes to the government.
How the Child Tax Credit Works
The child tax credit reduces your income tax bill by a set amount per qualifying dependent child. The reduction is a dollar-by-dollar basis. It is not a deduction from income, and it will not contribute to a refund, so the credit only applies if you actually owe taxes. For example, if you prepare your tax return and take all the deductions available to you, and you find that you're entitled to a tax refund of $1,500, you will not be able to use the child tax credit, because you don't owe any taxes. The same is true if you prepare your taxes and you're not getting a refund, but you don't owe, either.
What is a Qualifying Child?
The IRS will consider your child a "qualifying child" for purposes of applying the child tax credit if the child is either your biological child, stepchild, foster child, sibling, step sibling, half sibling or a descendant of any of these (such as your grandchild, niece or nephew); he was under the age of 17 at the end of the tax year; he did not provide more than half of his own support during the tax year; he lived with you more than half of the tax year; he is claimed as a dependent on your tax return; he does not file a joint return for the tax year; and he was a U.S. citizen, a U.S. national or a U.S. resident alien during the tax year. If your child meets these criteria for a qualifying child, you can claim the child tax credit for that child.
The Child Tax Credit for the 2017 Tax Year
For the 2017 tax year, the child tax credit is capped at $1,000 per child and is available only to individuals with income below certain thresholds:
- $75,000 if you're filing single; and
- $110,000 if you're married filing jointly.
If your income is higher than these amounts, your child tax credit will be reduced $50 per every $1,000 of income that exceeds these amounts until the credit reaches zero. For example, if you're single and have two qualifying children, your tax credit initially is $2,000 ($1,000 per child). However, if your income is $80,000, you exceed the limit by $5,000, which means your credit will be reduced by $250 per child. Your credit would only be $1,500 ($2,000 minus $500). If your single income exceeds $90,000, the credit will be completely wiped out.
The Child Tax Credit for the 2018 Tax Year
The Tax Cuts & Jobs Act increased the child tax credit to $2,000 per qualifying child, and the income thresholds have increased significantly to:
- $200,000 if you're filing single; and
- $400,000 if you're married filing jointly.
These income thresholds will end in 2025.