Basics on the CTC

The Child Tax Credit (CTC) is a federal tax credit that helps families with qualifying children reduce their federal income tax liability.

The child tax credit comprises two components:

  • Nonrefundable child tax credit (CTC); and
  • The refundable portion of the CTC, which is the Additional Child Tax Credit (ACTC).

For a parent or legal guardian to claim the CTC for their qualifying child, the child must meet the following seven requirements:

  • Age Test
  • Relationship Test
  • Support Test
  • Dependent Test
  • Citizenship Test
  • Residency Test
  • Valid SSN Requirement

Child Tax Credit Amounts Available for 2023

The child tax credit amount for the 2023 tax year is $2,000 per child. The refundable portion of the CTC, also called the Additional Child Tax Credit (ACTC), is $1,600 of the $2,000 amount.

Parents must remember that the CTC amounts are phased out depending on their income. The credit amount is reduced by $50 for every $1,000 your modified adjusted gross income exceeds the relevant threshold.

Sample Fact Pattern for Two Qualifying Children

In this video tutorial, Emily Taxpayer is a single parent filing as Head of Household (HOH) on her 2023 tax return. She has a son, Brian, who is 5 years old, and a daughter, Sarah, who is 9 years old. Both children are her dependents and live with her full-time.

Emily’s wages on Form W-2 (Wage and Tax Statement) are $50,600. She also received $54 of investment income from her bank. First, Emily reports her income and expenses on Form 1040 (US Individual Income Tax Return).

Next, she completes Schedule 8812 (Credits for Qualifying Children) for two qualifying children for $4,000 of total potential CTC. Emily completed Part I and the credit limit worksheet, which resulted in her getting $3,265 in CTC to offset her federal taxes. She doesn’t receive the full $4,000 credit in Part I because the CTC is nonrefundable and is limited to her federal tax liability.

After completing Part I, Emily completes Part II-A of Schedule 8812 to calculate her ACTC. Her ACTC amount is $735, which is a refundable tax credit. As a result, with two qualifying children and $4,000 of potential CTC, Emily receives the full benefit of $4,000, which comprises $3,265 of CTC and $735 of ACTC.

Additional Pages Covering the Child Tax Credit

More Information on the Child Tax Credit

Taxpayers seeking more information on child tax credits can visit the IRS website and the IRS Form 8812 instructions for CTC and ACTC. The IRS Publication 501 (Dependents, Standard Deductions, and Filing Information) contains guidance on which persons can be claimed as dependents on Form 1040 (US Individual Income Tax Return).