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Raising children is expensive. The federal child tax credit offers many parents a much-appreciated tax break. The child tax credit allows parents to reduce their tax liability by $2,000 for each eligible child or qualifying dependent.
After a year of expanded benefits that included advance monthly payments to parents in 2021, the child tax credit is back to its pre-pandemic form. Brush up on the details so you know what to expect when filing your 2022 taxes.
What Is the Child Tax Credit?
The child tax credit provides a $2,000 tax credit for each qualifying child you claim on your 2022 tax return. Unlike a tax deduction—which reduces your taxable income—a tax credit reduces your tax bill dollar for dollar.
If you're married, your adjusted gross income is $100,000 and you owe $13,234 in tax before credits, a $2,000 child tax credit would reduce your tax bill to $11,234.
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How Has the Child Tax Credit Changed Since 2021?
Taxpayers with kids may remember receiving expanded child tax credits under the American Rescue Plan in 2021. These expanded credits provided a $3,000 credit for each qualifying child ages 6 to 17 and $3,600 for children age 5 and younger. Half the credits were sent to parents as advance monthly payments, while the remainder was taken as a credit on 2021 tax returns. There were differences in income qualification as well.
The important thing to know now: Expanded child tax credits expired in 2021. In the absence of new legislation, the child tax credit has reverted to its pre-pandemic version, outlined in IRS Publication 972.
How Much Is the Child Tax Credit?
The child tax credit is $2,000 for every qualifying child you claim. Parents with dependent children 17 or older or who do not have a qualifying Social Security number—but do have an Individual Taxpayer Identification number (ITIN) or Adoption Taxpayer Identification number (ATIN)—may be able to claim a separate $500 credit for other dependents instead.
Who Counts as a "Qualifying Child"?
To qualify for the child tax credit, you and your spouse must have a Social Security or Individual Taxpayer Identification number by the tax filing deadline (including extensions). Each qualifying child must also have their own Social Security number and meet the following requirements:
- They are your biological child, stepchild, eligible foster child, sibling, stepsibling, half sibling or a descendant of any of the above.
- They will be under age 17 at the end of 2022.
- They will not provide more than half of their own support for 2022.
- They will live with you for more than half of 2022 (with some exceptions).
- They will be claimed as a dependent on your tax return.
- They will not file a joint return for the year (or will file it only to claim a refund of withheld income tax or estimated tax paid).
- They are a U.S. citizen, U.S. national or U.S. resident alien.
Is the Child Tax Credit Refundable?
The child tax credit is partially refundable. A refundable tax credit pays you a refund when the credit amount is larger than the taxes you owe. A fully refundable tax credit pays you the entire credit amount, regardless of your tax bill. A partially refundable credit limits the amount you can receive back.
You can receive up to $1,500 per eligible child as a refund if your child tax credits exceed your tax liability by claiming the additional child tax credit (ACTC).
What Are the Income Limits for the Child Tax Credit?
The child tax credit begins phasing out at a marginal adjusted gross income (AGI) of $400,000 for married couples filing jointly and $200,000 for all other tax filing statuses. The credit decreases by 5% of AGI over the income limit. So, if you are single with an AGI of $220,000, your child tax credit is reduced by $1,000 (5% of $20,000).
Refund restrictions may also apply for low-income taxpayers. The ACTC is limited to 15% of earnings above $2,500. A parent who earned only $10,000 for the year would be limited to 15% of $7,500 or $1,125.
Will Expanded Child Tax Credits Come Back?
If you're nostalgic for the 2021 expanded child tax credit and automatic monthly payments, stay tuned to Congress for legislative updates.
Although the Build Back Better Plan containing expanded child tax credits did not pass the Senate, new legislation may come through before the 2022 tax year ends. If not, the current child tax credit remains in place until 2025.
Are There Additional Tax Credits Parents Can Consider?
The list of refundable and nonrefundable tax credits available to all taxpayers is long. For working parents specifically, child and dependent care credits can provide up to $6,000 in nonrefundable credits to cover the cost of care while you work.
The American Opportunity Tax Credit provides partially refundable tax credits of up to $2,500 per year for qualifying education expenses, including the cost of the first four years of college or some private school tuition.
Claim the Child Tax Credit on Your Taxes
Claiming the child tax credit on your next tax return doesn't require any advance filing or paperwork. One exception: If any of your dependents does not have a Social Security number, make sure they get one before the tax filing deadline. Also, if your withholding is adjusted based on the 2021 expanded child tax credits, you may want to readjust your withholding based on this year's reduced credits.