This post has been updated for the 2017 (pre tax reform) and 2018 through 2025 tax years (post tax reform).
As part of the Republican Tax Cut & Jobs Act (tax reform), there were some pretty notable changes to the Child Tax Credit. Those changes take effect for the 2018 calendar year, but the old rules and amounts still apply for your 2017 taxes. I’ll cover both in this article.
What is the Child Tax Credit?
The Child Tax Credit is a significant tax credit for those with qualified dependent children under age 17 (more on qualifications in a bit).
The Child Tax Credit is a non-refundable income tax credit (with the possibility for it to become refundable through claiming the Additional Child Tax Credit). With a non-refundable credit, if your credit exceeds your income tax liability, then you won’t get a refund for the difference. On the plus side, a credit is a subtraction from actual taxes owed, which is much more valuable than a deduction (a subtraction from your actual income).
What is the “Additional Child Tax Credit”?
The name is somewhat confusing, but the Additional Child Tax Credit means that if your income is below a certain threshold and you have sufficient earned income, and your Child Tax Credit exceeds the taxes you owe, you are eligible to get a refund for the difference. This is determined on IRS Schedule 8812.
In other words, filing this separate schedule form can make the Child Tax Credit refundable. The amount that may be refunded is equal to 15% of earned income (see my post on the earned income tax credit, which can be claimed separately as well) above $3,000.
How Do I Claim the Child Tax Credit
If you have qualifying children, in addition to filling out the appropriate lines in your 1040 form, you will also want to submit IRS Schedule 8812.
The 2017 Child Tax Credit Amount
The maximum amount of the Child Tax Credit (per qualifying child) is $1,000 in 2017.
2017 Child Tax Credit Income Levels & Phaseout
The Child Tax Credit is limited if your MAGI is above a certain amount. The amount at which this phase-out begins varies depending on your filing status. For married taxpayers filing a joint return, the credit phase-out begins at $110,000. For married taxpayers filing a separate return, it’s at $55,000. For all other taxpayers, the phase-out begins at $75,000.
The 2018 Child Tax Credit Amount
As written, the child tax credit will be increased to $2,000 per qualifying child and will be refundable up to $1,400, subject to phaseouts. The bill also includes a temporary $500 nonrefundable credit for other qualifying dependents (for example, older adults). I’ll update this post as paperwork is released and we find out more.
2018 Child Tax Credit Income Levels & Phaseout
Phaseouts, which are not indexed for inflation, will begin with adjusted gross income of more than $400,000 for married taxpayers filing jointly and more than $200,000 for all other taxpayers.
What is a “Qualified Child” for the Child Tax Credit?
A qualifying child for this credit is someone who meets the qualifying criteria of six tests: age, relationship, support, dependent, citizenship, and residence.
- Age Test: To qualify, a child must have been under age 17 – age 16 or younger – at the end of the year.
- Relationship Test: To claim a child for purposes of the Child Tax Credit, they must either be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals (includes your grandchild, niece, or nephew). An adopted child is always treated as your own child. An adopted child includes a child lawfully placed with you for legal adoption.
- Support Test: In order to claim a child for this credit, the child must not have provided more than half of their own support for the year.
- Dependent Test: You must claim the child as a dependent on your federal tax return.
- Citizenship Test: To meet the citizenship test, the child must be a U.S. citizen, U.S. national, or U.S. resident alien.
- Residence Test: The child must have lived with you for more than half of the tax year. There are some exceptions to the residence test, which can be found in IRS Publication 972, Child Tax Credit.
There is a qualifying child questionnaire on the IRS website to help you determine eligibility, if you are unsure or want to double-check.
Can you Claim a Child Tax Credit in the Year the Child was Born?
After looking at the ‘residence test’ above, I was left wondering whether or not you could claim the Child Tax Credit in the year the child was born if the child was born in the second half of the year. Publication 972 lists this as one of the exceptions in which you can claim the credit.
Tax Credits for Child Care
In addition to the Child Tax Credit, there are also tax credits for child care that you should look into, if you’ve paid for child care.