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What is the Child Tax Credit?

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  • Written By: Tricia Ellis-Christensen
  • Edited By: O. Wallace
  • Last Modified Date: 17 September 2016
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A child tax credit may generally refer to any type of taxation benefits for those people who have children. Often what these benefits do is directly reduce total taxes paid. Hence they are a credit and not a deduction.

There are several countries that use some form of child tax credit, including the UK. Depending on income, people may even be refunded some of their credit if it reduces tax liability below zero. Since tax codes are subject to change, it’s important to check specific tax literature for the year of filing to see the specifics.

The United States has a child tax credit too, which is available to most people who have a qualifying child. The child qualifies if he or she is 17 or younger and does not self-support, and who lives with a person for at least half the year. The child doesn’t have to be a son or daughter but could be a younger sibling, niece or nephew, or grandchild. People who do not file jointly, such as a divorcing couple, might both claim the child as qualifying, and might only each take half of the child tax credit.

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In the late 1990s the tax credit amount was set at $400 US Dollars (USD) per child. It climbed slightly and then became significantly increased in the mid to late 2000s, so that parents could get a $1000 USD tax credit per qualifying child. This amount is limited by time though, and might decrease to half that at a later point. It’s hard to say specifically whether the US will increase or decrease the child tax credit in the future, since laws regarding taxation can be volatile.

Like in the UK, the US child tax credit may be partially refundable to some taxpayers in low-income brackets. People can determine whether they can claim what is called the additional child tax credit by filling out a worksheet to see if they qualify. Those who do qualify may also qualify for other direct refunds like earned income credit, which can refund some money even when people haven’t paid taxes.

One thing that may confuse people on the child tax credit is that there is also a place on federal tax forms to make deductions based on dependents. These are two different things. Deductions in Internal Revenue Service (IRS) forms usually mean amounts that get subtracted from gross income, prior to determining how much tax is owed. A credit is usually subtracted directly from tax amounts, after this amount has been calculated.

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