Child Tax Credit (CTC)

The child tax credit is a credit against federal income tax allowed for each qualifying child of the taxpayer, worth up to $2,200 per child. A qualifying child for this purpose is a qualifying child as defined in section 152 of the tax code who has not attained age 17 by the end of the year, so the credit uses a stricter age limit than dependency itself does. The credit is claimed on Schedule 8812, whose title is "Credits for Qualifying Children and Other Dependents", and the plural is deliberate: two separate credits are computed on that one schedule.

The credit is partly refundable. A portion of up to $1,700 per child, which the IRS calls the additional child tax credit, is treated as a payment and can therefore reach a family whose income tax was already nil. The remainder is nonrefundable and can only reduce tax that is actually owed.

The credit is permanent, and most published guidance has not caught up. Section 24(h) originally applied only to tax years from 2018 through 2025, so for seven years every explanation carried a warning that the credit would fall back to $1,000 afterwards. Section 70104(a)(1) of the 2025 tax law struck the end date out of the statute, and section 70104(a)(2) raised the amount. The credit is now indexed for inflation for tax years after 2025, rounded down to the next lowest $100, and the refundable portion is indexed on its own separate schedule.

Reading section 24 from the top produces 2017 law, which is a real hazard rather than a curiosity. Subsection (a) still says $1,000. Subsection (b)(2) still gives threshold amounts of $110,000, $75,000 and $55,000. Subsection (d)(1)(B)(i) still says $3,000. All three are displaced by subsection (h) for every year after 2017, and because that subsection is now permanent the original text will never apply again while remaining printed in the code. Any source quoting those figures is quoting text that has been dead for years.

The phase-out is a stepped reduction, not a smooth one. The credit is reduced by $50 for each $1,000 "or fraction thereof" of modified adjusted gross income above the threshold, so crossing a $1,000 boundary by a single dollar costs a full $50. Modified adjusted gross income here has its own definition, in section 24(b)(1): adjusted gross income increased by amounts excluded under sections 911, 931 and 933, which are the foreign earned income and possession exclusions. For a household without foreign income it is simply adjusted gross income.

The refundable portion is capped three separate times. First by the credit itself, since you cannot get back more than you were allowed. Second by a formula: 15 percent of earned income above $2,500. Third by a per-child dollar ceiling of $1,700. The middle cap is the one that determines the outcome for most lower-income families, because it means the refundable portion grows with earnings rather than being available in full from the first dollar. A family with no earned income at all receives no refundable portion. One alternative to the earnings formula is easy to miss and only ever helps: a taxpayer with three or more qualifying children may instead use the amount by which their Social Security and Medicare taxes for the year exceed any earned income credit, and section 24(d)(1)(B) applies whichever of the two figures is greater.

The 2025 law added an identification requirement that catches people who were previously fine. Section 24(h)(7) now requires the return to include the taxpayer's own Social Security number, or at least one spouse's on a joint return, in addition to the qualifying child's. The earlier version required only the child's. Both numbers must have been issued before the return's due date. Where a qualifying child fails the Social Security number test, section 24(h)(4)(C) routes that child into the $500 credit for other dependents rather than to nothing at all.

The credit for other dependents is a different credit sharing a schedule. It is worth $500 for each dependent who is not a qualifying child under 17, so it covers a 17-year-old, a college student who is still a dependent, and a dependent parent or other qualifying relative. It is entirely nonrefundable, which is the practical difference that matters: a family whose tax is already zero receives nothing from it.

The computation runs in a fixed order on Schedule 8812, and each step can only reduce what the previous one produced.

1. Count the qualifying children. Each must meet the section 152 tests and be under 17 at the end of the year, and each must have a Social Security number issued before the return's due date.

2. Start from the maximum, $2,200 per qualifying child, and add $500 for each other dependent.

3. Apply the phase-out if modified adjusted gross income exceeds $400,000 on a joint return or $200,000 otherwise. The reduction is $50 for every $1,000 or part of $1,000 above the threshold, and it reduces the total of both credits.

4. Split what remains into the refundable portion, limited to 15 percent of earned income above $2,500, or to the alternative payroll-tax computation if you have three or more qualifying children and it produces more, and in either case to a per-child ceiling of $1,700. What is left is the nonrefundable remainder.

Two hypothetical examples, each isolating one mechanism. On the phase-out, the Ferrises file jointly with two qualifying children and modified adjusted gross income of $432,000. They are $32,000 above the $400,000 threshold, which is 32 full increments of $1,000, so their credits are reduced by 32 times $50, or $1,600. The stepped design matters at the boundary: a joint filer at $400,001 is one dollar over, and because the statute counts a fraction of $1,000 as a whole increment, that single dollar costs $50.

On the refundable side, Dana has one qualifying child and $20,000 of earned income. The formula gives 15 percent of the amount above $2,500, so 15 percent of $17,500, which is $2,625. That is the ceiling the earnings formula imposes. The per-child dollar cap is a second, separate ceiling, and the refundable portion is the smaller of the two, so a household has to clear both before it receives the full refundable amount.

What the credit does well

• It is now permanent and indexed, so families can plan around it instead of around a scheduled expiry.
• A meaningful portion is refundable, which means it reaches households whose income tax is already zero and who would get nothing from a deduction.
• The thresholds are high enough that the great majority of families receive the full amount without any phase-out arithmetic.
• The credit for other dependents keeps something available for older children and supported relatives rather than dropping to nothing at 17.

Limits and cautions

• The refundable portion depends on earned income, so the families with the least earnings receive the least of it, and a family with none receives none.
• The under-17 age limit is a cliff, and it applies for the whole year based on the child's age at the end of it, so a child who turns 17 in December is treated as 17 for that year.
• The phase-out thresholds are not indexed, so inflation quietly pulls more households into the reduction each year.
• The $50-per-$1,000 step means a single dollar of extra income can cost $50 of credit at a boundary.
• The taxpayer's own Social Security number is now required, which removed eligibility from filers who previously claimed the credit using a taxpayer identification number.