Posted by Fred Lake

What is the Child Tax Credit (CTC)?

What is the Child Tax Credit (CTC)?

The CTC (Child Tax Credit) is intended to increase the income of parents or guardians of children and other dependents. It only applies to dependents under 17 years of age on the last day of the fiscal year. The loan is worth up to $ 2,000 per employee, but your income level determines exactly how much you can get. You must have earned at least $ 2,500 to be eligible for the child tax credit. Then it phases out for over $ 200,000 for individual contributors and $ 400,000 for joint filers. If your income exceeds the applicable limit, you will receive a partial credit. 

Tax credits directly reduce the amount owed by the IRS. So if your tax account is $ 5,000, but you are entitled to $ 2,000 in tax credits, your bill is now $ 3,000. This is completely different from a tax deduction, which reduces the amount of your income subjected to income tax.

The child tax care is refundable up to $ 1,400. This implies that if you are eligible for the child tax credit and reduce your tax liability below zero, the IRS will send you the remaining credit amount, up to $ 1,400.

The Recent Changes Made to the CTC

The TCJA made major changes to the U.S. tax code. These changes came into effect during the fiscal year 2018 and applied to taxes in 2019. This new financial plan included the following changes to the child tax credit:

  • A loan of $ 500 (non-repayable) is now available for each dependent aged 17 and over.

  • Children must have an SSN to be eligible.

  • The child tax care is refundable up to $ 1,400. Previously, it was not refundable.

  • The child tax credit phases out at an income level of $ 200,000 for individual taxpayers and $400,000 for joint filers. 

  • The earned income limit to qualify for the child tax credit is $ 2,500.

  • The value of the loan (per child) has increased from $ 1,000 to $ 2,000.

Another major change was that the new tax plan largely combined the (ACTC) Additional Child Care Tax Credit and CTC (child tax credit). This is one of the reasons the child tax credit became redeemable, and its limits increased.

Which Dependents Qualify for the CTC?

Eligibility for the child tax credit depends on several factors. A child claimed as dependent must pass six IRS tests:

  • Proof of Age: the child must be under 17 (i.e., 16 years or younger) at the end of the fiscal year.

  • Proof of Citizen and Resident: Child must be a U.S. national, an American citizen, or U.S. resident alien. As of fiscal 2019, your child must also have a social security number.

  • Proof of Dependency: the child must be declared dependent based on the federal tax declaration.

  • Proof of Residence: The child must have lived with you for more than half of the tax year.

  • Relationship Test: the child is your adopted child, son, daughter, stepson, brother, sister, foster child, half-sister, or half-brother. The child can also be an immediate descendant of any of the above (for example, their grandchild, grandchild, or grandchild). 

  • Support Test: The child did not offer more than half of his "support." Also, the child cannot submit a joint return that year.

Income limits for the Child Tax Credit

In addition to the tests stated above, your income determines whether you can claim the child tax credit. First of all, you must have an income of at least $ 2,500 to be eligible for the credit. Then, with the increase in adjusted gross income (AGI), the child tax credit begins to phase out.

Therefore, you are entitled to partial credit when you exceed a certain income limit (elimination level). As your income rises, the amount you can apply for continues to decrease until you can no longer apply for credit.

For 2019, child tax credit elimination begins at $ 200,000 AGI for individuals and heads of households. You cannot claim any credit if your income is over $ 240,000. For ordinary taxpayers, the loan begins to be repaid with $ 400,000. It will be eliminated at $ 440,000.

Claiming the Child Tax Credit

Qualified taxpayers can claim the child tax credit on Form 1040, line 12a, or Form 1040NR, line 49. To help you ascertain how much credit you are entitled to, you can use the Child Tax Credit Worksheet for children and other IRS dependents. If you want to file a return for a year prior to 2018, you can claim the credit only for 1040, 1040A, or 1040NR forms.


How much of the CTC is Refundable?

For 2019, up to $ 1,400 from the child tax credit will be refunded. So, if income tax on enrollment in 2019 is zero, you can receive a refund of $ 1,400 for each eligible child. This value is also indexed to inflation so that it will increase each year slightly.

However, the new tax law also limits the child tax credit's refundable portion to 15% of its earned income over $ 2,500. This means that you must have earned income of at least $ 11,830 to be eligible for a full refund of $ 1,400.

Additional Child Tax Credit 

Before the new tax law refunded the child tax credit, some taxpayers were eligible for the child tax credit (CCTA). This loan gives you a refund if the CHILD TAX CREDIT has reduced your tax bill to less than zero. (Remember that the CHILD TAX CREDIT was previously non-refundable). The CCTA has been largely phased out, but if you need to register for a fiscal year before 2018, you can find information for the CCTA on Form 1040.

State Child Tax Credits for Children

Some states offer an additional state-level child tax credit or child/dependent care tax credit that match some or all of the federal credits. In some states, the loans are repayable, and in others, they are not.



The IRS offers CTC to help parents and guardians offset some cost of raising a family. If you have a dependent who is not your direct child, you can also apply to claim a credit. And since some child tax credits are refundable, you can even make money when all is said and done.

Fred Lake
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