Child Tax Credit Definition: How It Works and How to Claim It

What Is the Child Tax Credit?

The Child Tax Credit is a tax benefit granted to American taxpayers with children under the age of 17 as of the end of the year. For the 2023 tax year (the tax return filed in 2024), the credit is $2,000 for each qualifying child.

You qualify for the full amount for each child if you earn up to $200,000 as an individual filer or $400,000 for joint filers. The benefit is phased out for parents with higher incomes.

This benefit has reverted to pre-2021 levels after two years during which emergency legislation related to the COVID-19 pandemic boosted the benefit to as much as $3,000 per child and $3,600 for children under age 6.

How the Child Tax Credit Works

The Child Tax Credit lowers taxpayers’ total taxes owed on a dollar-for-dollar basis. (That's better than a tax deduction, which reduces total taxable income and generally results in smaller savings.)

To get the credit, you must have a Social Security number for the dependent child. It can be claimed by filing Schedule 8812, Credits for Qualifying Children and Other Dependents with Form 1040.

The credits are available if the dependent child or children meet the following qualifications:

• Is under age 17 at the end of the tax year
• Is a child, stepchild, foster child, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of any of those family members
• Has lived with you for more than half the year
• Has contributed no more than half of his or her own support
• Has been claimed as a dependent on your taxes
• Has not filed a joint return with a spouse, or has filed only to claim a refund of estimated tax paid
• Is a U.S. citizen, national, or resident alien

The IRS offers an online tool to help taxpayers figure out if their child or dependent qualifies for the Child Tax Credit.

How to Claim the Child Tax Credit

Some people with low income don't bother filing taxes because they know they don't owe any money. That can be a mistake for several reasons.

All but the lowest income earners are required to file a tax return. Even more importantly, however, you may be missing out on some valuable benefits that you are eligible to receive. One of these, if you have a family, is the Child Tax Credit, which is partially refundable when combined with the Additional Child Tax Credit. This means you can receive part of it back even if you don't owe any taxes.

To claim the Child Tax Credit, a taxpayer must file Form 1040 (U.S. Individual Income Tax Return). In addition, a taxpayer must attach Schedule 8812 (Credits for Qualifying Children and Other Dependents).

Schedule 8812 is used to figure out the amount of Child Tax Credit a taxpayer is eligible to receive.

Child Tax Credit: Impact on Policy and Poverty

Since its enactment in 1997, the Child Tax Credit has benefited most working families. Over the years, it has been criticized regularly for providing little or no benefit to the poorest families, many of whom are not taxpayers and do not file tax returns.

The expansion of the Child Tax Credit during the pandemic had important implications for the economy at large as well as for low- and moderate-income families. The emergency measures include prepayment of the benefits to eligible taxpayers. Some efforts also were made to reach out to very low-income families who didn't normally file tax returns and therefore weren't easily identifiable by the IRS when it came time to mail out the checks.

Well before the pandemic, frequent amendments increased the Child Tax Credit amount and widened its eligibility requirements; at one time, refunds were restricted to taxpayers with three or more children. But, for years, the Child Tax Credit did not reach the poorest families.

In 2021, for the first time, the significant increase in the credit amount and the provision of total refundability extended benefits to the neediest families. According to the Center on Poverty & Social Policy at Columbia University, "...the sixth Child Tax Credit payment kept 3.7 million children from poverty in December [2021]."

As a result, monthly child poverty was reduced by nearly 30%.

The expanded and fully refundable Child Tax Credit was enacted as part of the American Rescue Plan Act, a law formally targeted at relieving the economic problems created by the COVID-19 pandemic. It also addressed many limitations considered problematic in the earlier versions of the Child Tax Credit.

The enlarged credit constituted an enormous financial commitment. Congressional Democrats strongly supported the increased Child Tax Credit. Republicans generally favored some expanded benefits for children but criticized the version of the Child Tax Credit that was enacted for its cost and for the lack of any work requirement. The Biden administration undertook an extensive public educational and promotional program to maximize the credit’s use and benefits.

The Bottom Line

The Child Tax Credit for the 2023 tax year is $2,000 for each child or other dependent. While the CTC is nonrefundable, the ACTC is partially refundable, which means that even taxpayers who don't owe any income tax can receive part of it as a refund. In 2023, up to $1,600 is refundable; in 2024, that increases to $1,700.

To claim the Child Tax Credit, you must file a federal income tax return.