The Child Tax Credit

The Child Tax Credit

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Updated November 20, 2020
The Child Tax Credit
Calculating the Credit
 The child must be the taxpayer’s son,
When calculating the total amount of federal income taxes
daughter, grandson, granddaughter,
owed, eligible taxpayers can reduce their federal income tax
stepson, stepdaughter, niece, nephew, or
liability by the amount of the child tax credit. Currently,
an eligible foster child of the taxpayer.
eligible families that claim the child tax credit can subtract
up to $2,000 per qualifying child from their federal income
 The child must live at the same principal
tax liability. The maximum amount of credit a family can
residence as the taxpayer for more than
receive is equal to the number of qualifying children in a
half the year for which the taxpayer
family multiplied by $2,000.
claims the credit.
 The child cannot provide more than half
If a family’s tax liability is less than the value of their child
of their own support during the tax year.
tax credit, they may be eligible for a refundable credit
calculated using the earned income formula. The refundable
3. The child must be a U.S. citizen or
portion of the credit is referred to as the additional child tax
national. If they are not a U.S. citizen or
credit, or ACTC. Under this formula, a family is eligible for
national, they must be a resident of the
a refund equal to 15% of their earnings in excess of $2,500,
United States.
up to the maximum amount of the refundable portion of the
Table 1. Child Tax Credit Parameters Under Current
credit. The maximum amount of the refundable portion of
Law
the credit is $1,400 per qualifying child.
Credit
The $2,000-per-child value of the credit falls by a certain
Parameter
Current Law
Post 2025
amount as a family’s income rises. Specifically, for every
$1,000 of modified adjusted gross income (MAGI) above a
Max Credit
$2,000 (NII)
$1,000 (NII)
threshold amount, the credit falls by $50—or effectively by
Per Child
5% of MAGI above the threshold. The threshold amount
Max
$1,400 (II)
$1,000 (NII)
depends on a taxpayer’s filing status, and equals $200,000
Refundable

for single parents and married taxpayers filing separate
Credit Per
Refundability $2,500 (NII)
$3,000 (NII)
returns, and $400,000 for married taxpayers filing joint
Child
Threshold
returns. The actual income level at which the credit is
entirely phased out (i.e., equals zero) depends on the
Refundability 15%
15%
number of qualifying children a taxpayer has. Generally, it
Rate
takes $40,000 of MAGI above the phaseout threshold to
Phaseout
$200,000 single & head
$75,000 single & head
completely phase out $2,000 of credit. For example, the
Threshold
of household filers (NII) of household filers
credit will completely phase out for a married couple with

(NII)
two children if their MAGI exceeds $480,000.
$400,000 married joint
$110,000 married
Currently, the maximum credit per child, refundability
filers (NII)
joint filers
threshold, and phaseout thresholds are not indexed for
(NII)
inflation. From 2018 to 2025, the maximum amount of the

ACTC is indexed for inflation. Table 1 provides an
Source: Internal Revenue Code, 26 U.S.C. §24.
overview of key provisions of the child tax credit under
Notes: NII = not indexed for inflation. II = indexed for inflation.
current law and how they will change, as scheduled under
P.L. 115-97.
The age and citizenship requirements for a qualifying child
for the child tax credit differ from the definition of
Definition of a Qualifying Child
qualifying child used for other tax benefits and can cause
In order to claim the child tax credit, a taxpayer’s child
confusion among taxpayers. For example, a taxpayer’s 18-
must be considered “a qualifying child” and meet several
year-old child may meet all the requirements for a
requirements that may differ from eligibility requirements
qualifying child for the earned income tax credit (EITC),
for other child-related tax benefits:
but will be too old to be eligible for the child tax credit.
1. The child must be under 17 years of age
ID Requirement to Claim the
by the end of the year.
Child Tax Credit
2. The child must be eligible to be claimed
The law requires that taxpayers who intend to claim the
as a dependent on the taxpayer’s return.
child tax credit provide a valid taxpayer identification
number (TIN) for each qualifying child on their federal
Specifically:
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The Child Tax Credit
income tax return. Under a temporary change in effect from
returns claiming the ACTC (and/or EITC) would be held by
2018 through the end of 2025, the child’s TIN must be a
the IRS until February 15. This provision was coupled with
work-authorized Social Security number (SSN). The SSN
a requirement that employers furnish the IRS with W -2s
must be issued before the due date of the tax return. Failure
and information returns on nonemployee compensation
to provide the child’s SSN may result in the taxpayer being
(e.g., 1099-MISCs) earlier in the filing season. Many
denied the credit (both the nonrefundable and refundable
believe that more time to cross-check income on
portions of the credit).
information returns will help reduce erroneous payments of
the ACTC by the IRS.
Absent any legislative changes, beginning in 2026, a valid
TIN for qualifying children will include individual taxpayer
At the end of 2017, President Trump signed into law P.L.
identification numbers (ITINs) and Social Security numbers
115-97, commonly referred to as the Tax Cuts and Jobs
(SSNs). ITINs are issued by the Internal Revenue Service
Act, or TCJA, which made numerous temporary changes to
(IRS) to noncitizens who do not have and are not eligible to
individual income tax provisions, including the child tax
receive SSNs. ITINs are supplied solely so that noncitizens
credit. The act increased the maximum amount of the credit
are able to comply with federal tax law, and do not affect
per child from $1,000 to $2,000, increased the maximum
immigration status. In addition, in order to claim the child
amount of the refundable tax credit per child from $1,000 to
tax credit in a given tax year, the taxpayer must also
$1,400, and increased the income level at which the credit
provide their own taxpayer identification number that must
phases out from $110,000/$75,000 for married/unmarried
be issued before the due date of the tax return. This is a
tax filers to $400,000/$200,000. The law also temporarily
permanent ID requirement that is not scheduled to expire.
changed the ID requirements of the credit. These changes
are scheduled to be in effect from 2018 through the end of
Refund Timing
2025. The legislative changes made to the child tax credit
Taxpayers who claim the ACTC may experience a delay in
by P.L. 115-97 have significantly expanded the child tax
receiving their refund. Tax filing season often begins
credit, especially for upper-income taxpayers, as illustrated
around the end of January. Under current law, tax returns
in Figure 1.
that include a claim for the ACTC (and/or the EITC) are
held until February 15. This can mean that taxpayers with
Figure 1. The Child Tax Credit Amount by Income
ACTC claims generally don’t receive their refunds until the
Level
end of February at the earliest.
History and Background
The child tax credit was enacted as part of the Taxpayer
Relief Act of 1997 (P.L. 105-34). When it initially went
into effect in 1998, the credit was a $500-per-child
nonrefundable credit, which primarily benefited middle-
and upper-middle-income families. Since enactment,
various laws have modified key parameters of the credit,
expanding the availability of the benefit to more low-
income families while also increasing the amount of the tax
credit. The first significant change to the child tax credit
occurred with the enactment of the Economic Growth and
Tax Relief Reconciliation Act of 2001 (EGTRRA; P.L.
107-16). EGTRRA increased the amount of the credit over

Note: This is a stylized example assuming the taxpayer has one
time to $1,000 per child and made it partially refundable
qualifying child.
under the earned income formula.
For more information on the child tax credit, including the
In 2008 and 2009, Congress passed legislation—the
$500 nonrefundable credit for non-child tax credit
Emergency Economic Stabilization Act of 2009 (EESA;
dependents, see CRS Report R41873, The Child Tax
P.L. 110-343) and the American Recovery and
Credit: How It Work s and Who Receives It, by Margot L.
Reinvestment Act of 2009 (ARRA; P.L. 111-5)—that
Crandall-Hollick; and CRS Report R45124, The Child Tax
further expanded the availability and amount of the credit to
Credit: Legislative History, by Margot L. Crandall-Hollick.
taxpayers whose income was too low to either qualify for
the credit or be eligible for the full credit. ARRA lowered

the refundability threshold to $3,000 for 2009 through
2010. The ARRA provisions were subsequently extended
Margot L. Crandall-Hollick, Acting Section Research
several times and made permanent by the Protecting
Manager
Americans from Tax Hikes (PATH) Act (Division Q of
IF11077
P.L. 114-113). The PATH Act also required that beginning
with tax returns filed in 2017, any refund associated with

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The Child Tax Credit

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