A Guide to the 2023 Child Tax Credit: The child tax credit is an essential federal tax benefit that provides financial support to American taxpayers with children. Individuals with dependent children under the age of 17 may be eligible for a tax credit of up to $2,000 per qualifying child. $1,600 of the credit for 2023 is potentially refundable.
We will discuss who is eligible, how to apply, and how much you may receive per child.
What is the tax credit for children?
The child tax credit (CTC) is a nonrefundable tax credit available to taxpayers with under-17-year-old dependent children. The credit can reduce your tax liability dollar-for-dollar, and in some cases eliminate it entirely. Some taxpayers may also qualify for a partial credit refund through the “additional child tax credit” (ACTC).
To qualify, taxpayers and their children must meet eligibility requirements that consider the child’s age and relationship to the individual claiming them.
To receive the full benefit, taxpayers must also satisfy income requirements, as the credit is phased out for high earners. Once your modified adjusted gross income exceeds the income limit, your credit may be reduced or you may be ineligible.
How much is the child tax credit for 2023?
Child tax credit for 2023 (tax returns due in 2024).
In 2023, the child tax credit is valued at $2,000 per qualifying child if your modified adjusted gross income is $400,000 or less (married filing jointly) or $200,000 or less (other filers). The refundable portion, also referred to as the additional child tax credit, has a maximum value of $1,600.
If your MAGI exceeds the above limits, your credit is reduced by $50 for every $1,000 over the threshold that your income is in excess of.
Child tax benefit 2022 (2023 tax returns)
If you have not yet filed your 2022 tax return, which was due on April 18, 2023, or October 16, 2023 with an extension, you can still claim the CTC when you file. The credit is valued at $2,000 per qualifying child for the 2022 tax year, with $1,500 potentially refundable.
Who is eligible to receive the child tax credit?
When filing their tax returns for the 2023 tax year, taxpayers can claim the child tax credit. In general, there are seven “tests” that you and your eligible infant must pass.
Age: Your offspring must have been under 17 at the conclusion of 2023.
Relationship: The child you are claiming must be your son, daughter, stepchild, foster child, brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of these individuals (such as a grandchild or niece or nephew).
Status as a dependent: You must be eligible to claim the infant as a dependent. Additionally, the child cannot submit a joint tax return unless they are claiming a refund of income taxes withheld or estimated taxes paid.
There are exceptions to this rule, but the child you are claiming must have resided with you for at least half the year.
You must have provided at least half of the child’s financial support over the past year. In other words, if your qualified child has been financially independent for more than six months, they are likely not eligible.
Citizenship: According to the IRS, your infant must be a “U.S. citizen, U.S. national, or U.S. resident alien,” and he or she must have a valid Social Security number.
Income: Typically, parents or carers claiming the credit cannot exceed certain income limits. Depending on how much your income exceeds the threshold, the credit is reduced until it is eventually eliminated.
Enhanced child tax benefit
If you qualify for the CTC but cannot claim it in full because you owe no taxes or owe less than your credit amount, you may be able to claim the additional child tax credit to receive a partial refund.
To qualify for the ACTC, you must meet all of the above income and dependent requirements, as well as the following:
Either you or your spouse must have a gross annual income of at least $2,500.
or have three or more dependents who qualify.
Typically, earned income refers to money from professions or self-employment. It excludes passive income sources such as dividends, pensions, welfare, and unemployment.
Form 2555 or Form 2555-EZ cannot be used to exclude foreign-earned income from taxes for you or your spouse (if filing jointly).
The IRS determines the amount of your additional child tax credit by multiplying your earned income over $2,501 by 15%. You may claim the lesser of this amount or the amount of the CTC credit you were eligible for but did not fully utilise. However, bear in mind that the maximum refund per qualifying dependent for the 2023 tax year is $1,600. This is an increase from $1,500 in 2022.
Maths can become more complicated if you have three or more dependent offspring. See Schedule 8812 for further information.
How to claim the child tax credit for 2023
For tax year 2023, you may claim the child tax credit and the additional child tax credit on your federal tax return (Form 1040 or 1040-SR) filed by April 15, 2024, or October 20, 2024, if you request an extension. You must also submit Form 8812 (“Credits for Qualifying Children and Other Dependents”) along with Form 1040. This schedule will assist you in determining the amount of your child tax credit and, if applicable, the amount of your partial refund.
The majority of high-quality tax software walks you through claiming the child tax credit with a series of interview questions, streamlining the process and even auto-filling the forms. If your income is below a certain threshold, you may also qualify for free tax software through the IRS’ Free File programme.
When your child tax credit refund is expected
Warning to early filers: By law, the IRS cannot release a refund for a return claiming the child tax credit until mid-February. However, filers who use direct deposit as their refund method, e-file, and submit an error-free return should see their refunds within the standard timeframe of three weeks after submitting their return.
Generally, when filing by paper, the wait time increases. The agency’s “Where’s My Refund” tool can also assist you in determining the status of your funds.
Consequences of a mistaken child tax credit
If you make an error on your tax return, your refund or the child tax credit portion of your refund may be delayed. In some instances, the IRS may also deny the entire credit.
If the IRS denies your claim for the CTC:
You must repay any CTC payments made in error, along with interest.
Form 8862, “Information To Claim Certain Credits After Disallowance,” may be required before you can reclaim the CTC.
If the IRS determines that your claim for the credit is false, you could be liable for a penalty of up to 20% of the amount of the credit claimed.
State tax rebates for children
In addition to the federal child tax credit, California, Colorado, and New York offer their own state-level CTCs that you may be able to claim when filing your state return. Visit the website of your state’s department of taxation for more information.
Compared to the child and dependent care subsidy
The child tax credit and the child and dependent care credit are not identical, despite their comparable names. The child tax credit is a tax incentive for individuals with children, while the child and dependent care credit is a tax credit for working parents or caretakers designed to offset expenses like day camp and after-school care. Both credits have distinct rules and requirements.
What is the $500 other dependents credit (ODC)?
If your child or a relative you care for does not quite qualify for the CTC, but you can claim them as a dependent, you may be eligible for a $500 nonrefundable credit known as the “credit for other dependents.” You can use an IRS tool to determine if your dependent qualifies for tax benefits.
The background of the child tax credit
Similar to other tax credits, the CTC has undergone evolution over the years. The Tax Cuts and Jobs Act, or TCJA, established specific parameters for claiming the credit from 2018 to 2025. However, the American Rescue Plan Act of 2021 (the coronavirus relief measure) modified the credit temporarily for the 2021 tax year, causing some confusion as to which modifications are permanent.
Here is a concise history of its development.
The Taxpayer Relief Act of 1997 introduced a $500 nonrefundable credit for the first time.
Economic Growth and Tax Relief Reconciliation Act of 2001 increased the credit to $1000 per dependent and made it partially refundable.
The Tax Cuts and Jobs Act (TCJA) of 2017 made several modifications to the credit, effective for tax years 2018 through 2025. This included increasing the credit maximum to $2,000 per dependent, establishing a new income threshold for eligibility, and ensuring that the partially refundable portion of the credit is adjusted annually for inflation.
The American Recovery and Reinvestment Act made several temporary adjustments to the credit for the 2021 tax year only. This included increasing the credit to a maximum of $3,600 per eligible child, extending eligibility to 17-year-olds, and making the credit entirely refundable. In addition, for the first time in U.S. history, many taxpayers received half of the credit as monthly advance payments from July through December 2021.
2022–2025: The 2021 ARPA enhancements expired and the credit reverted to the rules established by the TCJA, including the $2,000 per qualifying child limit. Each year, the refundable portion is adjusted for inflation.
