The United States federal child tax credit (CTC) is a partially-refundable tax credit for parents with dependent children. It provides $2,000 in tax relief per qualifying child, with up to $1,600 of that refundable (subject to a refundability threshold, phase-in and phase-out). In 2021, following the passage of the American Rescue Plan Act of 2021, it was temporarily raised to $3,600 per child under the age of 6 and $3,000 per child between the ages of 6 and 17; it was also made fully-refundable and half was paid out as monthly benefits.

The CTC was estimated to have lifted about 3 million children out of poverty in 2016. A Columbia University study estimated that the expansion of the CTC in the 2021 American Rescue Plan Act reduced child poverty by an additional 26%, and would have decreased child poverty by an additional 40% had all eligible households claimed the credit. The expansion also substantially reduced food insufficiency. Research indicates that cash transfers to families, like the refundable portion of the CTC, lead to improved math and reading test scores, a higher likelihood of high school graduation, higher college attendance, and long-term increases in income for both parents and children. Studies have also determined that the CTC increases labor force participation among low-income parents.

The CTC was created in 1997 as part of the Taxpayer Relief Act of 1997. Initially a small $500 per child nonrefundable credit, it was progressively made larger and extended to more taxpayers through subsequent legislation. In particular, it was temporarily raised to $1,000 per child and made refundable, subject to a phase-in, by the Jobs and Growth Tax Relief Reconciliation Act of 2003; that raise was made permanent by the American Taxpayer Relief Act of 2012; the credit was temporarily raised to $2,000 per child, with up to $1,400 of that refundable, and the number of taxpayers eligible substantially expanded by the Tax Cuts and Jobs Act of 2017; and finally the credit was expanded substantially and made fully available to very low-income people for one year by the American Rescue Plan Act of 2021.

Overview 2017–2025, excluding 2021

Under the Tax Cuts and Jobs Act of 2017 (TCJA), for the years 2018–2025 (excluding 2021, see below section Temporary Expansion in 2021) the CTC allows taxpayers to reduce their federal tax liabilities by $2,000 per qualifying child (see Eligibility). The maximum credit a taxpayer can receive is thus equal to the number of qualifying children multiplied by $2,000 (e.g. a family with 3 qualifying children is eligible for $2,000 x 3 = $6,000 in tax relief). The credit begins to phase out at a rate of $50 for every $1,000 in additional income over $200,000 for single filers and unmarried heads of households or over $400,000 for married joint filers.

Taxpayers whose incomes are too low to claim the full $2,000 credit (i.e. they have tax liabilities below $2,000) are eligible for the additional child tax credit (ACTC), a phased-in $1,400 ($1,600 starting 2023) refundable tax credit with similar qualifications. For example, if a taxpayer has one qualifying child and a tax liability of $100, then they can use $100 of the CTC to reduce their tax liability to $0 and then claim the full $1,400 ACTC (which will be refunded to them) for a total benefit of $1,500. Note, however, that the sum of the ACTC and CTC cannot exceed the maximum credit of $2,000. For instance, a taxpayer with one qualifying child and an $800 tax liability can use $800 of the CTC to reduce their tax liability to $0, but can only claim $1,200 of the ACTC (which will be refunded to them), for the maximum allowable benefit of $2,000.

However, a certain amount of earned income is required to begin taking the credit. The ACTC is calculated only on amount of earned income above $2,500. It phases in above $2,500, at a rate of 15%, up to the maximum-allowable $1,400 per child. For example, a taxpayer who makes $8,000 in earned income and has one qualifying child is eligible for .15($8,000–$2,500)=$825 of the ACTC. Notice that the income range of the phase-in increases with the number of qualifying children: a taxpayer making $30,000, for instance, could claim the full ACTC if they have one child (since .15($30,000 – $2,500) = $4,125 is greater than the maximum allowable $1,400 for one child) but could not claim the full credit if they have three children (since .15($30,000 – $2,500) = $4,125 is less than the maximum allowable $1,400 x 3 = $4,200 for three children).

The Congressional Research Service estimates that about 1 in 5 taxpayers with eligible children fall into the phase-in range (i.e. they had incomes too low to receive the maximum credit).

Temporary expansion in 2021

The child tax credit was substantially expanded for one year under the American Rescue Plan Act of 2021 (ARP), a stimulus bill passed during the economic downturn caused by the COVID-19 pandemic. The ARP increased the credit to $3,600 per child under the age of 6 and $3,000 per child between the ages of 6 and 17 (note that it increased the maximum age for an eligible child from 16 to 17). More specifically, it increased the tax credit to $3,600/$3,000 per child for single filers with incomes below $75,000, for unmarried heads of households with incomes below $112,500, and for married joint filers with incomes below $150,000. The credit phases down to a $2,000 credit (the value of the TCJA CTC) above these income levels, remains at $2,000 until income reaches $200,000 for single filers and unmarried heads of households or $400,000 for married joint filers, and then phases down to $0.

The ARP also made the credit fully refundable (i.e. it eliminated the income threshold and phase-in, making the credit fully available to people with very low incomes) and offered the option of receiving half of the credit as advance monthly payments, with the other half received as a tax refund when filing taxes in early 2022. Full refundability made the full value of the credit available to lower-income families, who previously tended to receive little or no benefit.

Post-2025

The $2,000 child tax credit instituted by the Tax Cuts and Jobs Act of 2017 (TCJA) is scheduled to expire in 2025. Under the One Big Beautiful Bill Act, the tax credit was increased by 10% to $2,200 in 2026 and is adjusted for inflation annually. The refundable portion reverted to its 2022 amount of $1,400, although it is adjustable for inflation. The income phaseout has been fixed at $200,000 ($400,000 for married filing jointly) and will not be indexed for inflation. The taxpayer and the eligible child must have a work-eligible Social Security number which is estimated to remove approximately 4.5 million children from eligibility who are in mixed-status families.

Related credits The child and dependent care credit allows eligible taxpayers to subtract $3,000 per child from their taxes for certain childcare services, capped at a total of $6,000 annually per taxpayer. The Tax Cuts and Jobs Act of 2017 created an additional dependent credit, allowing families to claim an additional $500 for an aging parent or older child requiring special care.

Comparison chart The below chart displays the differences between the three forms of the child tax credit explained above for joint filers.

Eligibility The child tax credit is available to taxpayers who have a "qualifying child." A person is a "qualifying child" if they are under the age of 17 (or, in 2021, under the age of 18) at the end of the taxable year and meets the requirements of 26 U.S.C. Sec. 152(c). In general, a qualifying child is any individual for whom the taxpayer can claim a dependency exemption and who is the taxpayer's son or daughter (or descendant of either), stepson or stepdaughter (or descendant of either), or eligible foster child. For unmarried couples or married couples filing separately, a qualifying child will be treated as such for the purpose of the CTC for the taxpayer who is the child's parent, or if not a parent, the taxpayer with the highest adjusted gross income (AGI) for the taxable year in accordance with 26 U.S.C. Sec. 152(c)(4)(A).

The Tax Cuts and Jobs Act of 2017 restricted the credit to only those dependent children possessing a Social Security Number (SSN); previously, dependents who did not possess a SSN because of their immigration status could still be eligible for the credit using an Individual Taxpayer Identification Number (ITIN). The One Big Beautiful Bill Act further extended this requirement to the parent claiming the credit (or one parent if filing jointly).

To receive the credit as a refund there are income requirements, see Overview.

Effects The child tax credit—especially the fully-refundable 2021 expanded child tax credit—significantly reduces child poverty. According to the Center on Budget and Policy Priorities, in 2018 the CTC, in conjunction with the earned income tax credit (EITC), lifted 5.5 million children above the poverty line. A 2021 Columbia University study estimated that the expansion of the CTC instituted by the American Rescue Plan Act reduced child poverty by an additional 26%, and would have decreased child poverty by 40% had all eligible households claimed the credit; the same group found that in the first month after the expansion of the CTC expired, child poverty rose from 12.1% to 17%, a 41% increase representing 3.7 million children. Additionally, changes to official poverty statistics understate the poverty alleviation effects of the child tax credit: the CTC does not raise the incomes of many poor families above the poverty line—and thus they do not appear in poverty reduction statistics—even though CTC benefits provide these families with substantial boosts in income.

Research indicates that income from the CTC and EITC leads to improved educational outcomes for young children in low-income households and is associated with decreased child behavioral problems and significant increases in college attendance among high school seniors in low-income families. Studies on the 2021 expanded CTC determined that the additional benefits decreased food insufficiency by about 25%. Evidence on cash transfers, like the refundable portion of the CTC, shows that children in families receiving them have improved math and reading test scores, a higher likelihood of high school graduation, and a 1–2% increase in earnings in adulthood; they also lead to "persistent" increases in parents' earned income. Evidence on the earned income tax credit and cash transfer programs in other countries also indicates that cash benefits reduce the rate of violent crime.

Two surveys of people who claimed the 2021 expanded child tax credit, one by the United States Census Bureau and another by the University of Michigan in collaboration with Propel, a technology firm, found that most families used the monthly CTC payments to pay for basic needs like food, rent, school supplies, utilities, and clothing, as well as to reduce personal debt. A survey by the American Enterprise Institute determined that lower income families were most likely to spend the benefit while higher-income families were most likely to save it.

A study of the labor effects of the CTC from 2001 to 2016, which included a phase-in, determined that the CTC increased labor force participation by 9.6 percentage points among low-income parents of older children. While some economic models predicted that the 2021 expansion of the CTC, which increased the credit value and eliminated the phase-in, would lead to modest negative employment effects relative to the prior CTC (while still having substantial anti-poverty effects), empirical research has indicated that, in the six-month period that monthly CTC payments were distributed, effects on employment and labor force participation were minimal.

History Origins