Child Tax Credit: A Guide for Accountants

Introduction 

The Child Tax Credit (CTC) helps reduce tax liability by providing credit for raising children. Reducing a taxpayer’s liability—and, in some cases, providing a refundable amount—serves as a crucial support mechanism for eligible families across the United States. As tax professionals, staying current with evolving tax legislation is essential to help clients navigate the complexities of credits like the CTC.  

At KMK, we understand that staying ahead in today’s complex tax landscape is essential for serving clients effectively. One crucial area where proactive guidance can make a big difference is the Child Tax Credit (CTC). The CTC reduces a taxpayer’s liability and provides critical financial support for eligible families. As accountants, staying informed about eligibility rules, benefit calculations, and filing nuances is key to maximizing savings for your clients. This guide offers a comprehensive overview of the Child Tax Credit—helping you deliver even greater value to the families you serve. 

What Is the Child Tax Credit? 

The Child Tax Credit (CTC) is a federal tax benefit that financially relieves families with dependent children. It helps reduce the amount of income tax owed by eligible taxpayers. The credit may even result in a tax refund, depending on the family’s income and eligibility. 

The credit is aimed at easing the financial burden of raising children and is particularly beneficial for middle- and lower-income families. Additionally, some portion of the credit may be refundable, meaning families could receive a refund even if they don’t owe any taxes. 

Who Qualifies for the Child Tax Credit? 

To qualify for the Child Tax Credit, each child must meet several requirements: 

• The child must be below 17 years of age. 

• Be a U.S. citizen, national, or resident alien. 

• Be your child, stepchild, foster child, sibling, stepsibling, or a descendant of any of these (e.g., grandchild, niece, nephew) 

• Lived with you for more than half of the year – The child must have resided in your household for most of the tax year. 

• Received most of their financial support from you – The child must not have provided more than half of their financial support. 

• Claimed as a dependent on your tax return – You must properly list the child as a dependent when filing your federal taxes. 

• Did not file a joint return – The child cannot file a joint tax return with a spouse unless it’s solely to claim a refund of taxes withheld. 

• The child should have a valid Social Security Number issued. 

Eligibility for non-filers – Individuals who do not typically file a tax return may qualify for the credit if they meet the income and dependency requirements. 

Limit to claim the Child Tax Credit? 

• Eligible taxpayers can claim up to $2,000 for each qualifying child. 

• The credit begins to phase out for individuals earning more than $200,000 annually ($400,000 for joint filers). 

• A portion of the credit—up to $1,600—is refundable under the Additional Child Tax Credit (ACTC). This means that families could receive a refund even if they have no tax liability. 

Can Both Parents Claim the Child Tax Credit? 

Typically, only one parent may claim the Child Tax Credit for a child in a tax year. Usually, the parent the child lives with most of the year (the custodial parent) is the one who can claim the credit. 

However, a non-custodial parent may claim the credit if the custodial parent signs IRS Form 8332, releasing the claim. These cases often depend on divorce agreements or court orders so legal guidance may be advisable. 

Can You Claim the Child Tax Credit for an Unborn Child? 

Federal tax law requires that the child be born and issued a valid Social Security Number during the tax year to qualify. While some states have proposed policies recognizing unborn children for certain benefits, this does not apply at the federal level for the CTC. Tax professionals should monitor federal and state-level changes to stay informed. 

Child Tax Credit and the Child and Dependent Care Credit- What is the difference? 

Though both credits benefit families with children, they serve different purposes: 

Child Tax Credit (CTC): 

Provides financial relief to families by helping offset the general costs of raising children under 17. 

Child and Dependent Care Credit: 

Provides partial reimbursement for childcare or dependent care costs, allowing the taxpayer (and spouse, if filing jointly) to work or search for a job. Understanding both is key to optimizing a client’s tax outcome. 

Read Also: Why Early E-Filing is a Game-Changer: Avoid the Last-Minute Tax Rush 

Helping Clients Claim Children on Their Tax Return 

Maximizing the Child Tax Credit requires a clear strategy and thorough documentation.  

Follow these steps: 

• Clarify Eligibility – Walk clients through the criteria for a qualifying child. 

• Calculate the Credit – Use IRS Schedule 8812 to determine the correct credit amount. 

• Account for Advance Payments – Discuss any advance payments received and how they affect the final refund. 

• Assess Income Levels – Use Form 1040 to determine if your client is subject to phaseouts. 

• Explain Refundability – Help clients understand the refundable portion and how it affects their return. 

• Strategize for Maximum Benefit – Consider how other credits (e.g., EITC, dependent care) may interact. 

• Maintain Accurate Records – Ensure all children have valid SSNs and appropriate documentation is filed. 

Conclusion 

Navigating the Child Tax Credit can be complex, but accountants can help families unlock significant financial benefits with the proper knowledge and preparation. By understanding the eligibility criteria, phaseout limits, refundability rules, and strategic filing tips, you can ensure your clients fully capitalize on this crucial credit. 

At KMK, we provide outsourced accounting, tax compliance, and advisory services that empower accounting professionals and businesses. Whether you need individual tax planning or comprehensive client management support, our experienced team ensures seamless, accurate, and timely solutions—partner with KMK to strengthen your client service and stay ahead in today’s evolving tax environment.