Child Tax Credit: The Ultimate Guide

Any parent will tell you bringing up children can be incredibly expensive. 

As soon as you bring them home, the costs start to materialize out of thin air. It all starts with diapers — but before you know it, it’s soccer fees, school trips, paying for college, weddings, and everything in between.

No matter how much money you’re bringing in, kids can put a serious strain on your wallet. Fortunately, the U.S. government offers some relief to qualifying families in the form of child tax credits.

This guide will explain what child tax credits are, who qualifies for child tax credits, what’s changed about the program in 2021, and how to apply.

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What is the Child Tax Credit?

The child tax credit is a tax benefit extended to U.S. families based on how many eligible dependent children they have.

Launched as part of the Taxpayer Relief Act of 1997, the Internal Revenue Service (IRS) child tax credit is designed as a financial boost to help U.S. taxpayers support their families. 

That being said, you don’t actually need to be an existing U.S. taxpayer to qualify for child tax credits — but we’ll get to that in a minute.

The current child tax credit for 2023 is $2,000 per qualifying child. A portion of this is refundable (up to $1,600 per child).

In order to be eligible for the U.S. government’s child benefit program, the child that you’re claiming the credit for will need to be 17 or younger.

For the purposes of the child tax credit, the IRS defines a “qualifying child” as a son, daughter, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them. By descendant of one of the above, the IRS is talking about grandkids, nieces, or nephews.

It’s also important to note that adopted children qualify, too. As long as a child has been lawfully placed with you via a legal adoption route, that child should be eligible for the child tax credit.

If you qualify for the child tax credit, it’s probably going to be a huge benefit to your finances. 

The U.S. government is essentially offering you a helping hand by reducing your tax burden because you have dependents you’re caring for. Better yet, the credit program is currently more inclusive than ever in terms of eligibility requirements.

Although the child tax credit has been around for decades, the thresholds change often.

Let’s zoom in and explore exactly who is eligible for the child tax credit.

Who's Eligible for The Child Tax Credit?

If you’re reading all of this thinking that the child tax credit sounds like a great opportunity, you’re in luck.

Nearly every U.S. family with one child or more qualifies for the child tax credit — but it’s important to bear in mind that there are some caps and thresholds. As you might expect, those caps are largely based on your family’s income.

How much the government is willing to give you as part of the child tax credit program depends on your modified adjusted gross income (MAGI) for 2023. The IRS will have worked that number out by looking at the most recent IRS tax return that you’ve submitted.

Although a whole lot of American families are eligible for the child tax credit, there are two phase-out points the IRS uses to reduce payments.

The first phase-out comes into effect if your MAGI in 2023 exceeds $150,000 if you’re married and filing a joint return with your spouse. If you’re filing as a head of household, the threshold is $200,000.

If you earn above this amount, your child tax credit will be reduced at a rate of $50 for every $1,000 that your MAGI exceeds the limit.

Once your family’s income has reached a second threshold, you won’t qualify for any child support from the credit program. 

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How to Apply for The Child Tax Credit

If you qualify for child tax credit payments, you’re probably going to want to take the government up on that. After all, you’re essentially being offered free cash. Fortunately, applying for child tax credits isn’t an issue.

Believe it or not, you don’t have to apply to get child tax credits. The IRS automatically takes your information and identifies you for the scheme without you needing to lift a finger.

That being said, the IRS advises that you have to file your taxes using the guidelines posted on Schedule 8812 to make sure that the information you’ve provided is sufficient.

If you did file your taxes, this information should have been submitted via IRS Form 1040.

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Conclusion

At this point, we’ve covered just about everything there is to know about the U.S. government’s child tax credit scheme.

The child tax credit is a decades-old system designed to help out American families with cash payments for each qualifying child.

Just remember that there are income thresholds, so your child tax credit payments might be less than the maximum amount depending on how much you or your spouse has earned in the most recent tax year.

Do you want to learn more about taxes and investing in a child’s financial future? You’re in the right place.

Check out the EarlyBird blog and download the app now to find out how you can start saving for the kids you love.

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