Child Tax Credit
The Child Tax Credit (CTC) is a federal tax credit that reduces the income tax liability of qualifying taxpayers with dependent children under age 17, with a maximum credit of $2,000 per qualifying child for tax year 2025. A portion of the credit — up to $1,700 — may be refundable through the Additional Child Tax Credit (ACTC) for taxpayers who owe less tax than the credit amount.
The Child Tax Credit was introduced in 1997 and has been expanded several times by Congress. For 2025, the credit is $2,000 per qualifying child under the age of 17 at the end of the tax year. A qualifying child must be a U.S. citizen, national, or resident alien and must be claimed as a dependent on the taxpayer's return. The child must also have a valid Social Security number.
The credit begins to phase out for higher-income taxpayers. For 2025, the phase-out begins at $400,000 of modified adjusted gross income (MAGI) for married filing jointly and $200,000 for all other filing statuses. For every $1,000 (or fraction thereof) by which MAGI exceeds these thresholds, the credit is reduced by $50.
The nonrefundable portion of the CTC can reduce tax liability to zero but not below. The Additional Child Tax Credit (ACTC), however, is refundable — taxpayers who have earned income above $2,500 and whose nonrefundable CTC exceeds their tax liability may be eligible to receive the refundable portion as a cash refund, up to $1,700 per qualifying child for 2025.
During 2021, the American Rescue Plan temporarily expanded the Child Tax Credit to $3,000 per child ($3,600 for children under age 6) and made it fully refundable. This temporary expansion was not extended beyond tax year 2021, and the credit reverted to pre-ARPA rules. The TCJA itself temporarily raised the credit from $1,000 (pre-2018 level) to $2,000 and raised the refundable cap; these provisions are currently scheduled to sunset after 2025 unless Congress acts.
For investor families, the CTC is relevant because it interacts with AGI calculations. Capital gains realizations that push MAGI above the phase-out thresholds can reduce or eliminate the credit. This is one reason why managing the timing and amount of capital gains realizations can be part of broader tax planning.
The Child Tax Credit is reported directly on Form 1040. Schedule 8812 (Credits for Qualifying Children and Other Dependents) is used to calculate the credit amount, the applicable limitations, and any refundable ACTC.