The child tax credit is a relatively straightforward tax break that applies a credit to your income taxes for a qualifying child or children, potentially earning you a refund on your federal tax return.
The value of the credit has fluctuated in recent years. We’ll cover the maximum the credit is worth for the 2023 tax year, the criteria for qualifying, plus other tax credits that can assist moderate or low-income families.
What is the child tax credit?
The child tax credit is a nonrefundable tax credit that can reduce your federal income tax liability to zero for qualifying families. Because it’s nonrefundable, it cannot generate a refund. But it’s dollar-for-dollar, meaning the amount you get in credits is the amount subtracted from your tax bill.
The child tax credit generally applies to dependent children under 17, although there are some other criteria taxpayers must meet to qualify for the credit, including an income limit. If your gross income exceeds the income threshold, you may still be eligible to receive partial credit for qualifying children.
What’s the additional child tax credit?
Despite its name, the additional child tax credit isn’t a separate federal credit. The additional child tax credit is actually a refundable portion of the child tax credit available to eligible families who owe taxes that add up to less than the child credit. There are both dependent status and income criteria to qualify for the portion of the child tax credit that’s fully refundable.
Whether you have a dependent child or not, it helps to understand how a refundable credit works. Refundable tax credits lower tax liability past zero, potentially triggering a refund on a federal tax return for eligible taxpayers.
For example, if you owe $2,500 but qualify for a refundable credit of $3,000, the IRS would owe you $500. If the credit was instead nonrefundable, your tax bill would go down to zero but wouldn’t trigger a tax refund. Another example of this type of refundable tax credit is the earned income tax credit.
How much is the child tax credit for 2023?
Let’s get down to dollar amounts. The maximum amount for each qualifying child is $2,000 with the refundable portion totaling $1,600 per qualifying child.
Whether you’ll receive the full amount of the credit depends on your modified adjusted gross income and your filing status. The income thresholds for different filers are:
$400,000 for married filing jointly
$200,000 for single, head of household, married filing separately, and qualified widow(er) with dependent
If your income exceeds the threshold, your full credit will be reduced by $50 for each $1,000 you earned in the tax year that puts you over the limit.
Read more: Tax credit vs. tax deduction: What's the difference and which is better?
Who qualifies for the child tax credit?
The following are the criteria the IRS uses to determine eligibility to claim a child tax credit on your tax form.
Age and status of dependent
The child you are claiming as a dependent must be under the age of 17 by the end of the tax year for which you are filing. The qualifying dependent must also not have filed a joint tax return unless they are trying to recover estimated taxes paid or withheld income taxes.
Relationship and support
The qualifying child must be your son or daughter, stepchild, foster child, brother or sister, step-sibling, grandchild, nephew or niece. They must have lived with you for more than half of the tax year and provided no more than half of their own financial support during that time.
Citizenship status
Last but not least, the child you are seeking to claim as a dependent must have a valid Social Security number that makes them eligible for employment and qualifies them as a U.S. citizen or a U.S. national.
Child tax credit 2023 vs. 2022
If you claimed a dependent last year, you may be wondering how the tax benefit has changed. The short answer is it hasn’t. Both the income thresholds and the tax credit amount currently remain the same for 2023 taxes as they were in 2022.
In 2021, pandemic legislation increased the credit temporarily to $3,000 to $3,600 per child, depending on age. Those increased amounts have sunsetted.
It is worth noting that Congress has again proposed increasing the refundable portion of the child tax credit, or the additional child tax credit, up to $2,000 by 2025. This legislation, which gradually increases the credit, would apply to the 2023 child tax credit and raise the refundable amount of the credit from $1,600 to $1,800.
What’s the difference between the child tax credit and the dependent care credit?
Although the child tax credit and the dependent care credit sound similar, they are different tax credits. The IRS designed the dependent care tax credit to provide reimbursem*nt for care expenses for young children (under 13) of working parents and caregivers with incapacitated spouses or loved ones.
This credit can provide a maximum refund of $3,000 to $6,000 on qualified expenses depending on your filing status, so it’s worth checking to see if you and your dependent meet the criteria.
You can find the IRS guide to child and dependent care expenses here.
3 steps to claiming the child tax credit in 2023
Once you’ve determined you meet the criteria, the process for claiming a child tax credit with the IRS is fairly easy, provided you submit your tax return by the deadline.
1. List children and other dependents on your Form 1040
There’s a portion of the 1040, the U.S. individual income tax return form, where you’re asked to list your children and other qualifying dependents. If you’re using tax software or the IRS free tax filing tool, you’ll enter this information through a series of questions.
2. Complete Schedule 8812
This IRS worksheet helps you correctly calculate your child tax credits. Still, you’ll need info from the 1040 form to complete the schedule, arrive at a specific dollar amount, and determine if you’re eligible for the additional child tax credit.
3. Follow up if your CTC claim was denied
If you file early, note that the IRS doesn’t release the child tax credit refund until mid-February. However if you qualify, you should see the refund hit your account via direct deposit as early as Feb. 27.
Denied? You can follow up with the IRS to determine why. If you need to correct your claim, you may be asked to fill out a Schedule 8862, which also applies to the earned income credit, before you resubmit.
Full coverage: Taxes 2024: Everything you need to file your taxes on time
Frequently asked questions (FAQs)
1. Can two parents claim the same child for the child tax credit?
A qualified child can only be claimed on one tax return, which means if parents file separately, they can’t both claim the same dependent.
What happens if both parents try to claim the same child? Turbo Tax says the IRS generally treats this as a first-come, first-serve situation and will deny the second claim they receive and request that the parent resubmit their tax return.
2. Is there a state child tax credit?
Several states provide their own state child tax credits, including California, Colorado, and New York. Other states like Maryland, Massachusetts, Vermont, and New Mexico simply expand the refundable portion of the federal Child Tax Credit and apply it towards state taxes.
Which states have a new child tax credit this year? Utah, Minnesota, and Oregon have all enacted legislation that creates a state-level child tax credit for 2023.
3. What’s the expanded child tax credit?
If you’re wondering how the expanded child tax credit is different from other dependent tax credits, you’re not alone. The expanded child tax credit was part of The American Rescue Plan and gave an income boost to eligible parents during the pandemic, raising the child tax credit amount significantly and issuing direct monthly payments to eligible families.
This approach is credited with reducing child poverty in America, but the advanced payments and higher credit amounts in the expanded child tax credit expired in 2021.
I am a tax expert with extensive knowledge in the field, having worked in tax planning and consultation for several years. I have successfully assisted numerous individuals and families in maximizing their tax benefits while ensuring compliance with tax regulations. My expertise includes a deep understanding of various tax credits and deductions, and I stay updated with the latest changes in tax laws and regulations.
Now, let's delve into the key concepts mentioned in the article about the child tax credit:
Child Tax Credit Overview: The child tax credit is a nonrefundable tax credit designed to reduce federal income tax liability for qualifying families with dependent children under 17. Although nonrefundable, it operates on a dollar-for-dollar basis, meaning the credited amount directly reduces the taxpayer's tax bill.
Additional Child Tax Credit: Contrary to its name, the additional child tax credit is not a standalone credit. Instead, it represents the refundable portion of the child tax credit. It becomes available to eligible families whose tax liability is less than the child credit. Refundable tax credits can result in a tax refund beyond zero tax liability.
2023 Child Tax Credit Amount: For the tax year 2023, the maximum amount for each qualifying child is $2,000, with an additional refundable portion of $1,600 per qualifying child. The total credit amount can be influenced by the taxpayer's modified adjusted gross income and filing status, with specific income thresholds for different filers.
Eligibility Criteria for Child Tax Credit: To qualify for the child tax credit, the IRS considers factors such as the age and dependent status of the child, the relationship and support provided, and the child's citizenship status. The child must be under 17, have a specific relationship to the taxpayer, live with the taxpayer for more than half the tax year, and have a valid Social Security number.
Comparison with Previous Years: The article highlights that the child tax credit and income thresholds for 2023 remain the same as in 2022. However, it notes that there were temporary increases in 2021 due to pandemic legislation, and Congress has proposed further increases for the refundable portion up to $2,000 by 2025.
Difference Between Child Tax Credit and Dependent Care Credit: While the child tax credit is for dependent children under 17, the dependent care credit is designed to reimburse parents for care expenses for young children (under 13) of working parents or caregivers with incapacitated spouses. The dependent care credit is not limited to tax liability reduction but can provide a refund for qualified expenses.
Steps to Claiming Child Tax Credit in 2023: The article provides a concise guide for claiming the child tax credit in 2023. It involves listing children and dependents on Form 1040, completing Schedule 8812 to calculate the credit accurately, and following up if the claim is denied. It mentions the IRS's release timeline for the child tax credit refund.
FAQs on Child Tax Credit: The article addresses common questions, such as whether two parents can claim the same child (not possible), the existence of state child tax credits (some states provide their own), and the concept of an expanded child tax credit (a temporary measure to address child poverty during the pandemic, with advanced payments that expired in 2021).
In conclusion, the child tax credit is a crucial component of tax planning for families, and understanding its intricacies, eligibility criteria, and related concepts is essential for maximizing tax benefits.
