Child Tax Credit: What You Need to Know

If you’re a parent, you know how expensive it can be to raise a child. However, your family may be eligible for child tax credits that can provide some relief to parents of qualifying children. 

What is a child tax credit?

A tax credit is a reduction of how much you owe in income taxes. Some credits are refundable, meaning that if the credit brings your tax bill to $0, some or all of the remaining amount is issued to you as a tax refund. 

Child tax credits are a form of tax credit that provides tax benefits to families raising minor children.

The American Rescue Plan

One of the best known forms was the child tax credit expanded by the American Rescue Plan in response to the COVID-19 pandemic. 

Under the American Rescue Plan, an existing federal child tax credit was increased, resulting in many families receiving automatic monthly advance payments between July and December 2021 based on a few eligibility rules, including income.  Couples making less than $150,000 and single parents making less than $112,500 qualified. There were no minimum income limits.

Qualifying families got a credit of $3,600 per qualifying child under the age of six. For children between the ages of six and 17, the full child tax credit was $3,000. The automatic monthly advance payments were issued to many families throughout 2021 based on tax return information from previous years. 

Now that the temporary increase for 2021 has expired, the child tax credit has gone back to what it was in 2020: $2,000 per dependent child age 16 or younger, with both minimum and maximum income limits and no automatic monthly advance payments.

State child tax credits

Several states have also created their own child tax credits that could provide parents with some relief on their state income taxes. 

As of October 2022, states with child tax credit programs for the 2022 tax year include: 

• California: Up to $1,000 under the Young Child Tax Credit for qualifying low income families with children under the age of 6.

• Colorado: Children must be under the age of 6 and families must meet state income limits.

• Idaho: $205 for qualifying children under the age of 18.

• New Jersey: Eligible residents can claim a credit up to $500 for each child under the age of six. State income limits apply.

• New Mexico: Up to $175 per child, depending on income.

• New York: Up to $100 per child or 33% of the federal child tax credit, whichever is greater, for families that meet the state income limits with children between the ages of four and 17.

• Oklahoma: Up to 5% of the child tax credit or 20% of the federal Child Care Tax Credit, for families that meet the state income limits with children under the age of 17.

• Vermont: Up to $1,000 for families that meet state income limits with children under the age of five

While the list of states that offer child tax credits is relatively short, you may qualify for other tax benefits from your state. Some states offer one-time tax rebates, while others have deductions for families with minor children that can reduce your taxable income. 

For example, in Connecticut, couples that make less than $200,000 (or single filers who make less than $100,000) could receive a one-time rebate of $250 per child, up to a maximum of $750. And some states, like Maine, Massachusetts, and Virginia, offer child care tax credits or deductions. 

How do I apply for a child tax credit?

While many people received automatic monthly advance payments for the expanded child tax credit in 2021, the child tax credit is reverting to its 2020 rules for the tax year of 2022. This means that in order for qualifying families to receive the credit, you’ll need to file your tax return starting in January 2023.

If you live in a state with its own child tax credit, state child tax credit programs vary in terms of eligibility and procedure. To find out if you qualify for a state child tax credit and how to apply, visit your state tax agency or contact a certified public accountant or tax preparer in your state.