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The Child Tax Credit: Everything You Need to Know

What Is the Child Tax Credit?
What Is the 2023 Child Tax Credit Amount?
Who Is Eligible for the Child Tax Credit?
How Does the Child Tax Credit Work?
How Do I Claim the Child Tax Credit?
Frequently Asked Questions

If you’re like me and have kids, you’re probably looking for any way to save money you can. And if you think back to 2021 when the Fed was mailing stimulus checks and offering tax credits, you probably had some extra cash in your hands thanks to the modified child tax credit (CTC). But now that we’ve made it through the pandemic, those modifications have expired. Let’s talk about what happened with the child tax credit over the past few years and what you need to know for 2023 and beyond.

But first, what’s a child tax credit, and do you qualify? Let’s get into it.

What Is the Child Tax Credit?

The child tax credit lowers your tax bill based on how many children you have. Basically, it’s a tax break for parents. (And let’s be real, we could all use a break. Right, Mom and Dad?) 

The government created this tax credit to help with the costs of raising kids—because raising kids isn’t cheap!

What Is the 2023 Child Tax Credit Amount?

For the 2023 tax year, you can get a maximum tax credit of $2,000 for each qualifying child under age 17—although there is an income limit of $400,000 for married couples and $200,000 for individuals.1

Now, there are two types of tax credits: refundable and nonrefundable. Both types lower your tax bill. But if a refundable credit is more than your total tax bill, you get whatever is left over back as a refund—even if your tax bill is zero!

That’s important to know because the child tax credit is (drum roll, please . . . ) a refundable tax credit. Woo-hoo! But the IRS does limit how much of a refund you can get back for each qualifying child, with the maximum being $1,500. This is the partially refundable portion of the additional child tax credit (ACTC).2 But hey, that’s still an amazing deal for you.

You might be wondering, Wait a minute . . . wasn’t the child tax credit way higher a couple of years ago? What gives? Well, most of the changes in the American Rescue Plan—including the increase of the child tax credit to $3,000 for children ages 6­–17 and $3,600 for children under age 6—have gone away.3 The goal of those increases was to give parents a little breathing room during the pandemic—and now we’re back to business as usual.

Who Is Eligible for the Child Tax Credit?

Does your family qualify for the child tax credit? You and your dependent need to meet a few requirements to be eligible. Here’s what you need to know:4

  1. The child must be under age 17 at the end of the year.
  2. The child must be related to you in one of the following ways: your son, daughter, eligible foster child, adopted child, stepchild, brother, sister, stepsibling, half sibling, or a descendent of one of these (like a niece or nephew).
  3. The child must be a U.S. citizen, a U.S. national or a U.S. resident alien.
  4. The child has to be claimed as a dependent on your tax return. So, if you share custody of your children, the child tax credit will go to the parent who’s claiming the kids for the 2022 tax year. You can’t both claim the same child. And if you do, you might have to pay a penalty to Uncle Sam and could even be banned from claiming the CTC again at all.5 That could be a costly mistake, so make sure you have everything figured out between the two of you.
  5. The child can’t file a joint return for the same tax year. But they can file a return to claim a refund of their withheld income taxes or estimated taxes paid.
  6. The child must have lived with you for more than half the year.
  7. The child must have provided no more than half of their own financial support during the year. For example, let’s say your teen made money with a summer job. They’ll only qualify if they made less than half of what their needs cost.

These are the CTC qualifications for your child, but here’s the deal with income requirements: If your income is $200,000 or less ($400,000 or less if you’re married filing jointly), then you qualify for the full amount. Anything above those thresholds and the credit amount starts phasing out.6

How Does the Child Tax Credit Work?

Tax credits—like the child tax credit—are awesome because they cut your tax bill dollar for dollar. (In case you’re wondering, a tax deduction also lowers your tax bill by lowering your taxable income.)

Don’t settle for tax software with hidden fees or agendas. Use one that’s on your side—Ramsey SmartTax.

If you’re married and filing jointly with a household income of $100,000, that means you owe about $13,200 in taxes this year. But let’s say you’re like me and you have three kids who are all under 17—how would the CTC affect your tax bill?

Since your income is under the $400,000 threshold for married filing jointly and each child qualifies, your child tax credit is $6,000. That means you cut your tax bill almost in half—down to about $7,200. It’s that easy!

How Do I Claim the Child Tax Credit?

If your child meets the qualifications I mentioned earlier, claiming this credit is a piece of cake. Just enter your children and other dependents on your Form 1040 or 1040-SR, then fill out and attach a Schedule 8812 (aka a Credits for Qualifying Children and Other Dependents form).

This Schedule 8812 form will help you calculate your CTC amount. And it’ll also help you figure out if you’ll get back any part of the credit as a refund. Remember, you could get a refund of up to $1,500 per child with the child tax credit.7 But here’s the deal: A big refund like that isn’t really a good thing. Because that’s actually your money—the government is just giving it back to you after you loaned it to them all year.

Adjust your tax withholdings on your paycheck so you bring that money home instead of sending it to Uncle Sam. Then you can use it during the year for all those kid-related expenses you’re juggling!

Claim the Child Tax Credit With Confidence

Alright, y’all. That was a quick rundown on the child tax credit, but if you’ve still got questions, don’t worry. You can get in touch with a RamseyTrusted tax pro for more details. I can’t recommend them enough. They’re the experts who’ll walk you through all the recent updates to the CTC and how those updates will impact your tax return.

If you’re ready to start filing and claim your child tax credit, check out Ramsey SmartTax today!

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Frequently Asked Questions

Yes, 12 states offer their residents a child tax credit on their state income taxes: California, Colorado, Connecticut, Idaho, Maine, Maryland, Massachusetts, New Jersey, New Mexico, New York, Oklahoma and Vermont.8 Each of these states has their own qualifications and income thresholds, so visit your state government’s department of revenue website for more details.

Advance payments were a convenient option for parents when the government offered them in 2020. They were part of the American Rescue Plan’s modifications to the child tax credit, but those changes expired in January 2021. Sorry guys, but it looks like the IRS isn’t bringing back those advance payments anytime soon.

Nope. The child and dependent care credit is a totally different credit that gives you a tax break on the costs of childcare or the care of other dependents (like elderly or disabled adults). It covers certain expenses that let you still go to work or attend school while caring for qualifying children and adults.9

If you have a dependent who doesn’t qualify for the child tax credit (maybe they’re over 17 or they aren’t related to you but still rely on you for housing or financial support), the credit for other dependents (ODC) tax credit might be an option to save you some money. The maximum amount is $500 for each dependent who meets this credit’s qualifications. Visit the IRS’ page on the other dependent tax credit for more details.10

Yes, as long as you meet the other qualifications for the CTC we looked at. Your little one will also need to have a Social Security number by the time you file.

The federal child tax credit was established in 1997 as part of the Taxpayer Relief Act and offered taxpayers a credit of $400 per child under the age of 17.11

During the COVID-19 pandemic, Uncle Sam made some modifications to the child tax credit to give parents a little extra help. The American Rescue Plan increased the amount of the credit and automatically enrolled parents to get half of their refund paid up front in monthly installments. Then the other half was paid out to them after they filed their 2021 taxes (like normal) in spring 2022.

But those changes to the CTC that meant a little extra cash in your pocket during the pandemic expired in December 2021.

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Rachel Cruze

About the author

Rachel Cruze

Rachel Cruze is a #1 New York Times bestselling author, financial expert, host of The Rachel Cruze Show, and co-host of Smart Money Happy Hour. Rachel writes and speaks on personal finance, budgeting, investing and money trends. As a co-host of The Ramsey Show, America’s second-largest talk radio show, Rachel reaches millions of weekly listeners with her personal finance advice. She’s appeared on Good Morning America and Fox News and been featured in TIME, REAL SIMPLE and Women’s Health, among others. Through her shows, books, syndicated columns and speaking events, Rachel shares fun, practical ways to take control of your money and create a life you love. Learn More.

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