The Child Tax Credit is a nonrefundable tax credit that is available for certain taxpayers with qualifying children age 16 and under (17 and under for tax year 2021). As a nonrefundable credit it reduces the amount of tax that a taxpayer would have to pay.
However, if the tax liability is already reduced to zero, the Additional Child Tax Credit (ACTC) which is a refundable credit will not be added to the tax refund. The Child Tax Credit has a limit of $2,000 per qualifying child, which is phased out based on the amount of tax owed and the taxpayer's modified adjusted gross income.
The main provisions of the Child Tax Credit are the following:
- The maximum amount of the credit is $2,000 for each qualifying child, age 16 or under (17 and under for 2021) claimed as a dependent on the tax return. To receive any part of this credit a taxpayer must have at least $2,500 in earned income.
- Child must have lived with taxpayer over half the year. If parents are separated or divorced, either parent may claim the credit based on a signed agreement.
- To be eligible, each qualifying child must have a valid Social Security Number before the due date of the tax return (including extension). A child with an Individual Taxpayer Identification Number (ITIN) or an Adoption Taxpayer Identification Number (ATIN) does not qualify.
- The taxpayer and Spouse, if filing jointly, must have a valid SSN or ITIN to claim the credit.
- The Child Tax Credit phases out when the AGI exceeds $400,000 for married filing jointly and $200,000 for all other filing statuses.
Two points to note:
- A child not eligible for the CTC may be eligible for the Other Dependent Credit (ODC).
- A return might include both the nonrefundable CTC and the refundable ACTC.
Note: The 2021 American Rescue Plan Act (ARPA) changed age of qualifying child to 17 and under. In addition, the ARPA increased the CTC to $3,600 for children under the age of 6, to $3,000 for children ages 6 and older. These changes impact the 2021 tax year only.
Note: This is a brief guide the Child Tax Credit. It is not intended as tax advice.