The Child Tax Credit is a powerful tax benefit aimed at American taxpayers with children under the age of 17 by the end of the tax year. For the 2023 tax year, the credit stands at $2,000 for each qualifying child.
You can qualify for the full amount per child if you earn up to $200,000 as an individual or up to $400,000 for joint filers. The benefit phases out for higher income levels.
This benefit reverts to pre-2021 levels following temporary increases due to COVID-19 emergency legislation, which had raised the benefit to up to $3,000 per child and $3,600 for those under age 6.
Key Insights to Maximize Your Tax Savings
- Significant Tax Benefit: The Child Tax Credit is worth $2,000 per child claimed on Form 1040 with Schedule 8812. This reduces your overall tax liability directly, unlike a tax deduction which merely reduces your taxable income.
- Eligibility Criteria: The credit applies to children under 17 with valid Social Security numbers. You get the full amount if your income is below $200,000 for singles or $400,000 for joint filers.
- Income Limits and Refund: Up to $1,600 of the credit is refundable for 2023, increasing to $1,700 in 2024, meaning even if you owe no tax, you can receive these amounts back.
How the Child Tax Credit Works for Your Family
The Child Tax Credit significantly lowers the total taxes owed on a dollar-for-dollar basis. Claiming the credit requires a Social Security number for each qualifying child, and it’s filed using Schedule 8812 with Form 1040.R qualifiers include:
- Age Requirement: Must be under 17 by the end of the tax year.
- Family Member: Includes child, grandchild, or other immediate descendants.
- Residency: Must live with you for more than half the year.
- Support: Must have provided less than half of their own financial support.
- Dependence: Should have been claimed on your tax return.
- Non-Filing with Spouse: Exceptions apply as needed for those filing just to reclaim estimated taxes.
- Citizenship: Must be a U.S. citizen, national, or resident alien.
The IRS provides an online tool to help determine eligibility.
How and When to Claim the Credit
Filing taxes is crucial even if you earn low incomes and feel you owe nothing, as some substantial benefits could still apply. For families, a major benefit is the partially refundable Child Tax Credit.
To claim it, a taxpayer must file Form 1040 (U.S. Individual Income Tax Return) alongside Schedule 8812, used to calculate the eligible credit amount.
Child Tax Credit’s Impact on Policy and Poverty
Enacted in 1997, the Child Tax Credit has consistently supported working families, though criticized for not helping the lowest-income families who don’t frequently file returns. Expanded benefits during the pandemic presented significant economic implications and aimed to reach many underserved groups.
Even before the pandemic, periodic amendments aimed to spread the reach of the Child Tax Credit. In 2021, the increase and full refundability of the credit extended it notably to assist the neediest families.
According to reports, measures significantly reduced monthly child poverty, with the expanded Child Tax Credit keeping millions out of poverty. The credit does not affect government benefits such as unemployment or SNAP.
Expansive changes, supported primarily by the American Rescue Plan Act, addressed earlier issues, though debates continue about cost and work requirement potentials.
Eligibility Requirements and Income Limits
To claim this credit:
- Social Security: Both parent and child need Social Security numbers.
- Single Claimer: Only one taxpayer can claim the Child Tax Credit for any dependent.
- Age and Support: Child must be under 17, lived with the taxpayer, and provided less than half of their support for the year.
- Eligible Relatives: Includes direct descendants such as stepchild or siblings.
Financial Thresholds for 2023
Full credits apply to single filers earning up to $200,000 and joint filers up to $400,000. Beyond these limits, partial credits still apply.
Claiming the Credit
To claim, filers need to use Form 1040 with Schedule 8812, ensuring each dependent has a Social Security number to calculate receivable credits.
The Core Takeaway
For 2023, each child under the Child Tax Credit can grant a benefit of $2,000. Combined with the Additional Child Tax Credit, up to $1,600 is refundable in 2023, climbing to $1,700 the following year. Filing your federal income tax return remains essential to claim this advantageous credit.
Related Terms: Earned Income Tax Credit, Standard Deduction, Tax Credits, Additional Child Tax Credit.
References
- Internal Revenue Service. “Child Tax Credit”.
- Internal Revenue Service. “2021 Child Tax Credit and Advance Child Tax Credit Payments — Topic C: Calculation of the 2021 Child Tax Credit”, Select Q C1. What is the amount of the Child Tax Credit for 2021? (updated March 8, 2022).
- Internal Revenue Service. “Credits and Deductions for Individuals”.
- Internal Revenue Service. “About Schedule 8812 (Form 1040), Credits for Qualifying Children and Other Dependents”.
- Internal Revenue Service. “Earned Income Tax Credit & Other Refundable Credits: What You Need to Know about CTC, ACTC and ODC”.
- Internal Revenue Service. “26 CFR 601.602: Tax Forms and Instructions; Rev. Proc. 2023-34”, Page 8.
- Congressional Research Service. “The Child Tax Credit: Legislative History”, Summary Page.
- Congressional Research Service. “The Child Tax Credit: Legislative History”, Pages 10-11.
- Congressional Research Service. “The Child Tax Credit: Legislative History”, Page 14.
- Center on Poverty & Social Policy. “December Child Tax Credit Kept 3.7 Million Children From Poverty”.
- The White House. “The Child Tax Credit”, Select If I sign up for the Child Tax Credit, will it affect my other government benefits (like SSI, SNAP, TANF, or WIC)?
- Internal Revenue Service. “Instructions for Schedule 8812, Credits for Qualifying Children and Other Dependents”, Page 1.
