How to Get the Child Tax Credit

The Child Tax Credit (CTC) reduces the amount of taxes you owe by a certain amount for each child under 18 years old that you claim as a dependent.

Tax credits give you a dollar-for-dollar reduction of your tax liability, which is the total amount of taxes you owe each year. This is different from a tax deduction, which lowers the amount that can be taxed from your gross income. In other words, tax credits have the same value for each taxpayer who claims them, while the value of tax deductions depends on your income.

The Child Tax Credit was established in 1997 as part of the Taxpayer Relief Act and the original credit amount was $400 per child. The value of the credit has increased over the years to keep pace with inflation and the needs of taxpayers. For tax year 2021, the IRS increased the CTC’s value to $3,600 per child ages 5 and under and $3,000 per child ages 6 through 17.

The CTC is refundable, which means that if the value of the credit is greater than the amount of taxes you owe, you can be paid back some or all the excess. If the CTC’s value exceeds the amount of taxes owed, you could receive up to $1,400 as a tax refund. This refund is known as the Additional Child Tax Credit (ACTC).

The American Rescue Plan Act, which passed in 2021, increased the CTC amount per child and made the credit fully refundable. The act also authorized the IRS to disburse half of the CTC amount to families as periodic advance payments starting in July 2021. Nearly 61 million children received these advance payments as of August 2021.

To qualify for the Child Tax Credit, taxpayers must meet certain requirements based on income, number of dependents, age, filing status and other factors.

The amount of the tax credit is reduced for higher income filers, as demonstrated in the table below.

Aside from your income, you must also have at least one “qualifying child” to receive the CTC. There are six eligibility requirements the dependent must meet to qualify.

You can find out if you’re eligible to receive the CTC with the Advance Child Tax Credit Eligibility Assistant. To use this free tool from the IRS, you’ll need your previous year’s tax return or documents to prove income such as W-2s or 1099s.

There is no application process to claim the CTC; you just need to file your taxes for the tax year. Certain low-income taxpayers may not need to file a tax return. To claim the credit without filing, you must sign up to receive the credit using the government’s non-filer sign-up tool.

If you’re one of the millions of Americans who received advance CTC payments in 2021, you may be wondering how those payments will affect your tax refund in 2022.

Those advance monthly credits are factored into your tax refund, so you may see a smaller refund or even a bill from the IRS once you file your tax return. This is because the eligibility for these advance credits was calculated based on taxpayers’ 2020 income, which for many Americans was negatively impacted by the COVID-19 pandemic.

If those who received an advance credit earned more in 2021 than they did in 2020, their eligibility to receive the CTC may be reduced or even eliminated. Tax experts anticipate that many Americans will be surprised by the smaller write-off on their tax return, and some may even have to repay their credits depending on how much their income changed in 2021.

Beginning in late December, the IRS issued Letter 6419 to Americans who received Advance Child Tax Credit payments. This important letter details the total amount the taxpayer received in ACTC payments and the number of qualified children that were used to calculate the credit amount. You can use this information when you file your tax return to claim any remaining money from the CTC that you have not yet received.

Many Americans count on receiving a certain amount of their tax refund to make important personal financial decisions, so it’s important to understand how claiming this credit will impact your taxes. If you want to get the most out of your tax refund and claim all the credits that are available to you, working with a CPA or other tax professional can set you on the right path.