48 millions Americans currently collect the Child Tax Credit (CTC). The CTC is an essential assistance program specially designed for low-income families to help cover daily living expenses. This refundable credit helps to alleviate poverty, promote economic stability, and ensure that families have the resources to care for their children. By targeting families in need, the CTC plays a critical role in addressing inequality and fostering a healthier, more stable economic environment for the next generation. However, changes are expected for the CTC starting in 2025.
The CTC: Providing assistance to low-income families
The CTC is a tax benefit available to individuals with dependent children under the age of 17. The base credit amount is $2,000, but it phases out at higher levels of modified adjusted gross income (MAGI), meaning that higher earners may receive a reduced credit or become ineligible altogether. As a nonrefundable tax credit, the CTC directly reduces the amount of taxes owed on a dollar-for-dollar basis. However, some individuals may qualify for a partial refund if the credit exceeds the taxes they owe.
For 2024, the Child Tax Credit was worth up to $2,000 per qualifying dependent child. The refundable portion, known as the Additional Child Tax Credit, was worth up to $1,700. You were eligible for the full credit amount if your modified adjusted gross income (MAGI) was $400,000 or less for married couples filing jointly, or $200,000 or less for all other filers. If your MAGI exceeded these limits, the credit was reduced by $50 for every $1,000 of income above the threshold, gradually phasing out until it was no longer available. The 2024 Child Tax Credit is claimed on tax returns filed in 2025. The CTC is also expected to arrive sooner than expected next year.
CTC changes for 2025
The Child Tax Credit amounts for the 2025 tax year will apply to taxes filed in April 2026. For 2025, the maximum credit limit will remain $2,000, with a maximum refundable portion of $1,700. The income thresholds for the Child Tax Credit will also stay the same, with a limit of $400,000 for those married filing jointly and $200,000 for all other filers.
Although the Child Tax Credit income thresholds for 2025 will remain the same at $400,000 for married couples filing jointly and $200,000 for other filers, this does not necessarily reflect a positive development, especially considering the rising cost of living. As inflation continues to drive up prices for everyday essentials like food, housing, and healthcare, the value of the credit may not go as far as it once did.
While the credit itself remains at $2,000 per child, its ability to offset the increased financial strain on families is diminished, particularly for those living in areas where living costs have surged. Maintaining the same income thresholds without adjusting for inflation means that many families may still find it difficult to fully benefit from the credit.
Qualifying criteria for the CTC
- Age: The child must have been under the age of 17 at the end of the tax year.
- Relationship: The child you are claiming must be your son, daughter, stepchild, foster child, brother, sister, half-brother, half-sister, stepbrother, stepsister, or a descendant of any of these individuals (e.g., a grandchild, niece, or nephew).
- Dependent status: You must be able to claim the child as a dependent. Additionally, the child cannot file a joint tax return unless it’s to claim a refund of withheld income taxes or estimated taxes paid.
- Residency: The child must have lived with you for at least half the year, though there are some exceptions to this requirement.
- Financial support: You must have provided at least half of the child’s financial support during the year. If the child financially supported themselves for more than six months, they may not qualify.
- Citizenship: According to the IRS, your child must be a U.S. citizen, U.S. national, or U.S. resident alien and must have a valid Social Security number.
- Income: Parents or caregivers claiming the credit must also meet certain income limits. As income exceeds the threshold, the credit is gradually reduced and may eventually be eliminated.
