How the Child Tax Credit Reduces What You Owe in Taxes

What the Child Tax Credit Does

The Child Tax Credit is a reduction in the amount of federal income tax you owe, based on how many children you claim as dependents. For each child who meets the requirements, you subtract a set dollar amount from your tax bill. If the credit is larger than what you owe, you may receive money back from the IRS — this is called a refund.

The credit is not the same as a deduction. A deduction reduces your taxable income; a credit reduces your actual tax bill. Because credits work directly on what you owe, they are usually worth more to your bottom line.

Key Takeaways

The Child Tax Credit reduces your federal tax bill by a set amount per may have access to child under age 17.
You claim the credit on your tax return by listing each child's name, date of birth, and Social Security number.
The credit amount and income limits change year to year, so check the IRS website or your tax form instructions for the current year.
If the credit is larger than your tax bill, you may receive the difference as a refund, though the refundable portion has a limit.
You must be the child's parent, legal guardian, or meet other relationship requirements to claim them.

Who Can Claim a Child

To claim a child for the tax credit, you must be their parent, stepparent, adoptive parent, or legal guardian. In some cases, grandparents, aunts, uncles, or siblings can claim a child if they meet specific requirements — mainly that they provide more than half the child's financial support for the year and the child lives with them for more than half the year.

The child must be under age 17 at the end of the tax year, a U.S. citizen, national, or resident alien, and have a valid Social Security number. Only one person can claim each child in a given year. If parents are divorced or separated, the parent with custody for the majority of the year usually claims the child, unless they sign a form agreeing otherwise.

How Much the Credit Is Worth

The credit amount varies by year and is set by Congress. In recent years, the amount has been $2,000 per child, though this has changed in the past and may change again. The IRS publishes the current year's amount in the instructions that come with Form 1040 and on their website.

There are also income limits. If your income exceeds a certain threshold, the credit begins to reduce — you lose a portion of it for every dollar you earn above that limit. The threshold amount depends on your filing status (single, married filing jointly, head of household, and so on) and changes each year.

How to Claim the Credit on Your Tax Return

You claim the Child Tax Credit on your federal tax return using Form 1040 and Schedule 8812 (if needed). You will list each may have access to child's full name, date of birth, and Social Security number. The form asks whether the child lived with you for the required time and confirms your relationship to them.

If you file electronically, tax software will walk you through the questions and calculate the credit automatically. If you file by paper, follow the instructions included with Form 1040. Make sure the child's Social Security number is correct — a mismatch can delay your refund or cause the IRS to disallow the credit.

The Refundable Portion of the Credit

Part of the Child Tax Credit is refundable, meaning if the credit is larger than your tax bill, you get the difference back as a refund. The refundable portion is called the Additional Child Tax Credit or the Refundable Child Tax Credit. The amount that is refundable changes year to year and has limits.

For example, if you owe $800 in taxes but your Child Tax Credit is $2,000, you would owe $0 and receive a refund. However, the refundable portion may be capped at a percentage of your earned income or a fixed dollar amount, depending on the year. Check the current year's Form 1040 instructions to see how much of the credit can be refunded to you.

Income Limits and Phase-Out

The Child Tax Credit begins to reduce if your income is above a certain level. For married couples filing jointly, this threshold has recently been $400,000; for single filers, $200,000. These amounts adjust slightly each year for inflation.

Once your income exceeds the threshold, you lose $50 of the credit for every $1,000 (or fraction thereof) over the limit. This reduction is called the phase-out. If your income is significantly above the threshold, the credit may be reduced to zero, though you may still be able to claim other tax credits or deductions.

Changes to the Credit and Where to Find Current Information

Congress has changed the Child Tax Credit amount, refundable portion, and income limits several times in recent years. The credit is not permanent in its current form — some provisions have expiration dates. Before you file, check the IRS website (irs.gov) or the instructions that come with Form 1040 to confirm the current year's amounts and rules.

Tax software and tax preparers also have access to the current rules and will explore them correctly when you file. If you are unsure whether your situation qualifies or how much credit you can claim, the IRS also offers a free tax clinic locator on their website where you can speak with a trained volunteer.

Frequently Asked Questions

Can I claim the credit if I do not file a tax return?

You must file a federal tax return to claim the Child Tax Credit, even if your income is below the threshold that normally requires filing. However, if you have no tax bill and no credit, you may not need to file. The IRS website has a tool to help you determine whether you must file.

What if the child's other parent also wants to claim them?

Only one person can claim a child per tax year. If both parents try to claim the same child, the IRS will contact you to resolve the conflict. Usually, the parent with custody for more than half the year has the right to claim the child, unless that parent signs a form (Form 8332) agreeing to let the other parent claim them.

Do I need to report the child's income?

If the child has earned income (from a job) or unearned income (from investments), you may need to file a separate tax return for them or report it on your return, depending on the amount. This is separate from claiming them as a dependent for the Child Tax Credit. The IRS website has worksheets to help you determine whether your child must file.

What happens if I claim a child who is not mine?

Claiming a child you are not may have access to to claim is tax fraud. The IRS matches Social Security numbers and will catch mismatches. Penalties include owing back taxes, interest, and a penalty of 20 to 75 percent of the unpaid tax, plus possible criminal charges in serious cases.

Can I claim a stepchild or foster child?

Yes, if the child meets the relationship and residency requirements. A stepchild must be your spouse's child and live with you for the entire year. A foster child must be placed with you by an authorized placement agency or court order and live with you for the entire year. Both must have valid Social Security numbers.

This guide is for general information only and is not medical, financial, legal, or other professional advice. For decisions specific to your situation, consult a qualified professional. See our Editorial Policy.