The child tax credit has been around since 1997. It was expanded in 2001, then it got even better with 2018's tax reform. The Tax Cuts and Jobs Act boosted the amount of the credit significantly, and it also raised the income limits for being eligible to claim it, making it available to many more taxpayers. The TCJA made some other minor tweaks to the credit as well.
Then came 2021 and the American Rescue Plan Act, implemented in response to the COVID-19 pandemic. ARPA added some very generous provisions to the credit, but for this one tax year only. The end result of all this is that you might get a gift from the Internal Revenue Service when you file your tax return 2022 just for having kids.
How Much Is the Credit Worth?
The Economic Growth and Tax Relief Reconciliation Act of 2001 gradually increased the credit from $500 to $1,000, and that’s where it stayed through 2017. The TCJA doubled that. The child tax credit is worth up to $2,000 per qualifying child in most years, with the exception of 2021. That works out to $6,000 if you have three children, and you could be eligible to receive up to $1,400 of anything that’s left over after erasing your tax bill as a tax refund. That's $1,400 per qualifying child.
The credit increased to $3,000 per child in 2021 under ARPA for children ages six through 17. They no longer qualify when they reach their 18th birthday. It rose to $3,600 for children younger than six years old. The credit is also fully refundable for tax year 2021. There's no $1,400 limit.
It used to be that you had to take extra steps to claim another separate credit, the additional child tax credit, if you wanted to claim any unused portion of the child tax credit as a refund. The TCJA more or less rolled the two credits into one. The $1,400 amount is indexed for inflation, so it can be expected to increase slightly from year to year to keep pace with the economy.
Child Tax Credit Refund Example
Here’s an example of how the refundable portion of the credit works in most years: You have one child, so you’re eligible for the $2,000 credit. You realize that you owe the IRS $500 when you finish your tax return. The child tax credit eliminates that debt, and you would still have $1,500 of the credit left over.
You have earned income of $30,000 for the year. The refundable portion of the credit is normally equal to 15 percent of your income over $2,500, or $27,500. And 15 percent of $27,500 is $4,125.
No, you won’t be receiving $4,125 from the IRS because that’s more than the refund cap. Remember, the refund is “up to” $1,400. But you will at least get $1,400 from the IRS because you’ve qualified up to the full limit.
The Rules for a Qualifying Child
Of course, the IRS isn’t that generous, and numerous rules and requirements apply to the child tax credit in years other than 2021. First, make sure that your child qualifies:
- She must be no older than age 16 on the last day of the tax year.
- You must claim her as your dependent on your income tax return.
- She must have lived with you for more than six months out of the year, although temporary absences, such as if she lives away at school for a while, are OK.
- She must be related to you in some way, although the IRS is pretty flexible with this rule. Of course, she qualifies if she’s your biological or adopted child, but she can also qualify if she’s your stepchild, foster child, sibling, step-sibling, half-sibling, grandchild or niece.
- Your child can’t have paid for more than half of her own support needs during the tax year if she happens to work or otherwise have income.
- Your child must also be a U.S. citizen, U.S. national or resident alien.
- Your child must have a valid Social Security number that was issued before the date you file your tax return.
- Your child can’t file a joint return with her spouse if she happens to be married, unless it’s for the sole purpose of claiming a refund – in other words, they have no tax liability.
The Social Security number rule is a new wrinkle introduced by the TCJA, so don’t assume that you qualify for the child tax credit for your younger child simply because you qualified with your older child in previous years. Make sure you have that Social Security number.
There Are Income Limits, Too
Take a deep breath – that refund isn’t in your hands quite yet. You must also meet certain income requirements to qualify for the child tax credit, although the TCJA has made this rule pretty generous.
This is a “phaseout” tax credit. The full $2,000 per child credit begins reducing as you earn more income, until you finally won’t qualify for the credit at all if you earn too much. But the thresholds are pretty high, thanks to the changes made by the TCJA: $200,000 for single taxpayers and those who qualify as head of household, and $400,000 if you’re married filing jointly. This is up from just $75,000 and $110,000 respectively before 2018.
Unfortunately, these income levels dropped in 2021 under ARPA, but again, for this one tax year only: $75,000 for single taxpayers, $112,500 for those who qualify for the head of household filing status and $150,000 for married taxpayers who file joint returns.
An Income Threshold Example
Your child tax credit reduces by 5 percent of the amount you go over if you earn more than the income thresholds. Maybe you have income of $205,000 for the year, and you’re a single taxpayer. Five percent of that $5,000 in income that went over the $200,000 limit is $250. Your child tax credit therefore drops from $2,000 to $1,750 as a result: $2,000 less $250, or 5 percent of $5,000.
But here’s a bit of good news. You’re earning a pretty comfortable income if you pass these thresholds, even in 2021, and the thresholds aren’t your gross income, but rather your modified adjusted gross income, or MAGI.
So What's Your MAGI?
You can determine your MAGI by first calculating your adjusted gross income. This will appear on line 11 of the 2021 Form 1040 when you've completed your federal tax return.
Your AGI is your gross earnings less certain above-the-line adjustments to income – tax deductions that you can take without itemizing.
The “above the line” tag is due to the fact that you can claim these deductions right off the bat, before you reduce your taxable income even further by claiming either the standard deduction or by itemizing.
As of tax year 2021, these above-the-line adjustments to income include contributions you might have made to a health savings account or to your individual retirement arrangement, as well as student loan interest you might have paid during the tax year for yourself, your spouse or dependents. They include moving expenses if you’re in the military and must relocate due to a permanent change of station. They also include your costs of health insurance, contributions to a retirement plan and half of the self-employment taxes you must pay if you're self-employed.
You must file Schedule 1 with your tax return in order to claim adjustments to income, and Part II of the form provides a complete list of all that are available.
Now Calculate Your MAGI
OK, you’re halfway there. Add to your AGI any tax deductions you took for foreign earned income or foreign housing exclusions. That's it. The result is your MAGI for child tax credit purposes.
Most taxpayers don’t take these deductions, so your MAGI for child tax credit purposes is probably the same as your AGI, just as it appears on line 11 of your 1040 form. You won’t necessarily calculate your MAGI in this same way for other tax breaks and credits. The MAGI rules can be marginally different for each.
The Credit for Other Dependents
The TCJA made another significant change to the child tax credit in 2018, expanding it to create a credit for older dependents as well. You’re not necessarily out of luck if you’ve realized that you’ve met all these qualifiers, but your dependent child turned 17 on Dec. 30 so they don't meet the age requirement. You might still qualify for this extra tax credit.
It won’t be as much – it’s just $500 rather than $2,000, or $3,000 or $3,600 in 2021. It’s been referred to as the “family tax credit,” although technically, the IRS calls it the “credit for other dependents.” But this add-on for other dependents is unfortunately a nonrefundable credit. It can decrease or erase your tax bill, but that’s about it. The IRS won’t send you part of the balance if any of the $500 is left over.
The same income thresholds and rules that apply to the child tax credit also apply to this tax credit, but your dependent doesn't necessarily have to have a Social Security number at the time you file your tax return. She must have an Individual Taxpayer Identification number or an Adoption Taxpayer Identification number, however.
What About Qualifying Relatives?
Your child might still qualify for this new offshoot of the child tax credit even if she’s older than age 19, or age 24 if she’s a full-time student. She won’t qualify as your child dependent for tax purposes because she’s too old, but she might be your qualifying relative instead.
According to the IRS, this would be the case if she had gross income – not AGI or MAGI income – of less than $4,300, and if you provided more than half of her total financial support for the tax year. She actually wouldn’t even have to live with you if you paid more than half of her household expenses so she could live elsewhere, assuming she’s your child.
The $4,300 figure is indexed for inflation, so it can increase periodically and might go up in 2022.
Otherwise, anyone who isn’t related to you would have to live with you throughout the entire year, but yes, if that person meets all these rules, you could claim the “other dependent” credit for her, too.
What If You’re Not the Custodial Parent?
The IRS provides a possible solution if you lose out on claiming the child tax credit simply because you’re divorced or separated, and your child didn’t live with you for more than half the year.
Provided that you and your ex lived apart at all times through the last six months of the tax year, she can effectively waive the right to claim your child as a dependent for purposes of the child tax credit, giving it to you. She can sign IRS Form 8332, which you can then submit with your tax return to claim the child tax credit.
Read more: IRS Form 8332 Instructions
You Might Have to File Schedule 8812
Schedule 8812 was historically used and had to be submitted to the IRS if you were claiming the additional child tax credit for a refund. It must be filed by some taxpayers when the credit ceases to be fully refundable after 2021.
You must complete Part I of the schedule if your child is considered a U.S. resident because he meets what the IRS calls the “substantial presence test” and he isn’t a nonresident alien. This means that he was physically present in the U.S. for at least 31 days out of the current year and for 183 days during the last three years – including the current year – and one-sixth of these days occurred in the second year.
And because the additional child tax credit is now part of the child tax credit, you must complete Parts II and III and submit the form with your tax return if you want the IRS to refund any portion of the credit. The good news here is that the instructions that come with Schedule 8812 will help you figure out how much of a refund you’re entitled to.
Your CTC Refund May Be Delayed
You might have to wait a bit for your child tax credit refund thanks to some other federal tax legislation. The Protecting Americans from Tax Hikes Act of 2015 prohibits the IRS from issuing any tax refunds resulting from claiming the earned income tax credit or the child tax credit until Feb. 15.
Even if you file your tax return the nanosecond the filing season opens, you’ll have to wait a little while before you get your hands on the cash.
This applies not only to the portion of your refund that represents your child tax credit, but any excess withholding you might have paid in all year as well. In other words, the IRS will sit on your entire refund until Feb. 15.
But again, the 2021 tax year is an exception to the usual rules. Many families received half of their child tax credit refunds in advance over the course of the calendar year. You'll only have to wait for your refund for the other half when you file your return in 2022.
These Child Tax Credit Rules Might Change
Keep in mind that the TCJA is set to expire at the end of 2025, and this means that its child tax credit provisions – like that $2,000 credit amount as opposed to just $1,000 and the higher income phaseout thresholds as well – could potentially disappear into thin air at that time. The child tax credit will revert back to the old rules (not the ARPA rules) as of Jan. 1, 2026 unless Congress acts to renew the terms of the TCJA or revamps the child tax credit by itself to keep these terms in place.
You wouldn't qualify for the child tax credit if your MAGI is $205,000 in 2026 and you’re single because the income limit for this tax filing status would drop back to $75,000. And 5 percent of the difference – $130,000 – works out to $6,500, which totally eliminates the $1,000 credit.
The expiration of this legislation would affect the refundable portion of the tax credit as well. Remember, your refund is currently equal to 15 percent of your earnings above $2,500. This would revert back to the level it was at in 2017: $3,000 or $500 more, so you’d be calculating that 15 percent on less income.
You can say goodbye to the $500 tax credit for other dependents as well if the TCJA expires.
- IRS: Get Ready for Taxes
- TaxSlayer: Tax Law Changes in 2019 That Might Affect Your Family
- IRS: About Schedule 8812
- Tax Policy Center: What Is the Child Tax Credit?
- TurboTax: 7 Requirements for the Child Tax Credit
- H&R Block: What Is Modified Adjusted Gross Income?
- IRS: Qualifying Relative Dependents
- IRS: Substantial Presence Test
- Nolo: Above the Line Deductions You Can Take Without Itemizing
- Center on Budget and Policy Priorities: Policy Basics – The Child Tax Credit
- IRS: Divorced and Separated Parents
- U.S. Department of the Treasury: Child Tax Credit
- IRS: Publication 5549 IRS User Guide, Child Tax Credit Update Portal
- IRS: Advance Child Tax Credit Payments in 2021
Beverly Bird has been writing professionally for over 30 years. She is also a paralegal, specializing in areas of personal finance, bankruptcy and estate law. She writes as the tax expert for The Balance.