Child Tax Credit in the USA: What Should You Know About It and How It Relates to Income Tax?

Introduction to CTC

As pointed out by the Internal Revenue Service (IRS), the Child Tax Credit (CTC) helps families with qualifying children get a tax break. The United States federal CTC is a partially refundable tax credit for parents with dependent children. It provides a credit of up to $2,000 per child under the age of 17. An excessive tax owed may confer a family up to $1,700 per child of the balance as a refund, namely, refundable CTC or additional child tax credit (ACTC). This ACTC is limited to 15% of earnings above $2,500. 

Mostly, the CTC is not registered for inflation, but the exception to this is the amount of credit that families with children under 17 can receive as a refund. This amount increases annually with inflation until it equals the full value of the credit. In 2025, the refundable portion of the credit is $1,700. In this process, the refundable portion increases in $100 increments with inflation.

How CTC Works Today?

Starting in 2018, CTC was made available with a $500 credit to dependents who were not eligible for the $2,000 CTC for children under 17. These individuals would not have been qualified for a tax credit before 2018 but would have qualified for a dependent exemption, eliminated by the Tax Cuts and Jobs Act (TCJA) in 2017. Eligible dependents for this credit include children aged 17-18 or 19-23 who studied in schools for at least five months of the year. It also included older dependents, who represented about 6% of the CTC-eligible dependents. 

After 2025, the CTC is scheduled to revert to its pre-TCJA form. At that point, taxpayers will be able to claim a credit of up to $1,000 for each child under age 17. This credit will be reduced by 5% of adjusted gross income over $75,000. A credit exceeding the taxes owed will make the taxpayers eligible to receive the balance as ACTC. It will be limited to 15% of earnings above $3,000.

Criterion of Qualification

One can claim CTC for each qualifying child with a valid Social Security number valid for employment in the United States. Now, to be a qualifying child for the 2025 tax year, the dependent must-

1. Be under 17 at the end of the tax year

2. Not deliver more than half of his or her own support for the tax year

3. Be someone’s son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-sister, half-brother, or a descendant of one of these

4. Be claimed as a dependent on your return

5. Have lived with the guardian or parent for more than half the tax year

6. Be a U.S. citizen, a U.S. resident alien, or a U.S. National

7. Do not file a joint return for the year (or file the joint return only to claim a refund of withheld taxes or estimated taxes)

8. Must have a Social Security Number valid for employment and issued before the due date of one’s tax return

One qualifies for the full amount of the 2025 Child Tax Credit for each qualifying child if one meets all the eligibility factors and one’s annual income is not more than $200,000. Parents or guardians having higher incomes may be eligible to claim a partial credit. 

Claiming Process of the CTC

One can claim the CTC by entering one’s children and other dependents on Form 1040, U.S. Individual Income Tax Return, and attaching a filled Schedule 8812, Credits for Qualifying Children and Other Dependents. The U.S. taxpayers use Form 1040 to file an annual income tax return. Form 1040-SR is an optional alternative to Form 1040 for taxpayers who are 65 or older. According to the IRS, Schedule 8812 is used to figure out one’s CTC to report advance CTC payments one received in 2021 and to identify any additional tax owed if excessive advance CTC payments were received during 2021.

Limitations of Child Tax Credit

Despite its varied benefits, CTC has certain limitations-

• CTC per qualifying child is an amount of $2,000

• ACTC or CTC starts to decrease in value if one’s adjusted gross incomes exceed $200,000 ($400,000 married filing jointly)

• The refundable part of the credit is worth up to $1,700 for each qualifying dependent

• It is not eligible if someone or someone’s spouse files a Form 25555 or Form 2555EZ (excluding foreign income)

Trump’s Beautiful Tax Bill Gets Small Boost in CTC

A recent news report about U.S. President Donald Trump’s tax bill boosting CTC is buzzing. A Yahoo Finance report says that the CTC will increase from $2,000 to $2,200 per child, increasing 10% in the CTC claim. Presently, taxpayers who earn under $200,000 annually as a single filer or $400,000 if jointly filing can claim a partially refundable credit of up to $2,000 for each child dependent under the age of 17 and a U.S. citizen or a qualifying non-citizen. Although there is an increase of 10%, the following years of price rises have eroded the value of the original benefit. Many low-income children and the children of undocumented U.S. citizens’ parents will be locked out of the payments altogether.

RSM US LLP in Offering CTC Services

Among all tax preparation services in the U.S., RSM US LLP has been contributing to the expanded child tax credit. The tax framework by the tax-service-providing company Momentum builds a potential tax agreement that would couple an expanded CTC with a temporary reinstatement of certain TCJA-related business tax benefits. This includes:

1.  Less stringent business interest limitations

2. Research and development expenses

3. Continuation of 100% bonus depreciation

As proposed, this framework of RSM US LLP would expand the child tax credit for three years and would modify the calculation of the refundable CTC to enable more families with multiple children to claim a bigger credit before entering into limits depending on earned income. 

This article, published by The Silicon Journal,  a trusted media platform, sheds light on the Child Tax Credit in the USA and its role in income tax filing. As a media publication, its articles, blogs, and expert opinions cover many areas and industries to keep its readers connected and well-informed.