Budgeting & Saving

The Child Tax Credit Explained

Raising kids can be a pricey endeavor, which is why you should pay close attention to any tax benefits you qualify for. In particular, the child tax credit is one of the best tools families can use to reduce their taxes this year and beyond.

Tax reform legislation passed in 2017 has made the child tax credit more robust. And, thanks to higher income thresholds, more people than ever can qualify. If you have kids and want to use the child tax credit to help reduce your tax bill, read on to learn more.

The Child Tax Credit Explained

The child tax credit—which is now $2,000 per qualifying dependent—was created to help parents offset the costs of raising a family. Unlike a tax deduction, which reduces your taxable income, a tax credit directly reduces the amount of tax you pay. If you owe $5,000 in taxes otherwise and can apply the child tax credit for one qualifying dependent, for example, your tax bill would lower to $3,000.

The child tax credit is available to those whose incomes fall within a certain range. For the 2018 tax year and beyond, the threshold where the child tax credit begins to phase out is $200,000 for single filers and $400,000 for those married filing jointly. Also note that families must earn at least $2,500 per year to qualify for this credit.

Keep in mind that the income thresholds are based on your modified adjusted gross income (MAGI), or the amount of income you have after accounting for other deductions and credits. If a single filer or couple reports a MAGI above income thresholds, the credit is reduced by $50 for each $1,000 their income exceeds the threshold.

The child tax credit is also refundable to some taxpayers in amounts up to $1,400. This means that even if you don't owe any taxes at the end of the year, you can still be refunded up to $1,400 of the credit.

How Do I Qualify for the Child Tax Credit?

Beyond the income threshold, you must meet additional requirements to qualify for the child tax credit. For you to receive this credit, the following must all apply:

  • The child is younger than 17 at the end of the tax year
  • You claim the child as a dependent on your taxes
  • The child lives with you for at least half of the year
  • The child is a U.S. citizen, a U.S. national or a resident alien

The child tax credit applies to each qualifying child in your household, which especially helps if you have a large family. If you have two qualifying children, you could apply for a tax credit of $4,000. With five qualifying children, your credit would be worth $10,000.

Will I Benefit From the Child Tax Credit?

Considering the child tax credit was worth $1,000 per qualifying child for households with modified adjusted gross incomes up to $75,000 for single filers and $110,000 for married filing jointly until 2017, this updated credit is expected to apply to many more households. However, other changes caused by tax reform, including the end of some personal exemptions, could offset part of the benefit for families.

Either way, it's best to take advantage of any tax credits you can qualify for while you can. If you have children under the age of 17 in your home and meet all other requirements, you could see some tax relief this year and beyond.

Do Taxes Impact My Credit Report?

While you should always pay taxes when they are due, many taxpayers wonder whether tax information impacts their credit report or credit scores. In April 2018, all three credit reporting agencies (Experian, TransUnion and Equifax) agreed collectively to remove tax lien information from credit reports.

If you're curious about information that may be impacting your credit scores and overall credit health, it never hurts to check your credit reports. Doing so can help you discover incorrect information or simply monitor your progress.

Want to instantly increase your credit score? Experian Boost helps by giving you credit for the utility and mobile phone bills you're already paying. Until now, those payments did not positively impact your score.

This service is completely free and can boost your credit scores fast by using your own positive payment history. It can also help those with poor or limited credit situations. Other services such as credit repair may cost you up to thousands and only help remove inaccuracies from your credit report.