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Child Tax Credit

IRS Child
Tax Credit

There are factors to consider when it comes to a child or children and income taxes.

The 2020 Tax Return Child Tax Credit

On this page, the focus is on the Child Tax Credit and the Additional Child Tax Credit.

Important Update Advanced Child Tax Credit: Due to the American Rescue plan, the IRS is setting an online page for the Advanced Child Tax Credit and begin disbursing up to $300 per child in monthly payments by July 2021. The Advanced Child Tax Credit will send parents monthly direct payments for each child 17 and younger they claim for tax purposes.  If you generally do not file a tax return, you will have to file a 2020 tax return so the IRS will have a record of the number of dependents you will claim. More details will be added here once they are available.

If you have a qualifying child at the age of 16 or younger as of December 31, 2020, you may be able to claim the Child Tax Credit. Part of the Child Tax Credit can be refundable, so it may give you a tax refund even if you don't owe 2020 taxes. The qualifying child or children must have a social security number or SSN issued by the Social Security Administration before the tax return or tax extension due date. For 2020 returns, that date is  April 15 - May 17, 2021. Steps to take to obtain a SSN.

Here are some important facts about the Child Tax Credit:

  • The Child Tax Credit is intended to offset the many expenses of raising children.
  • The Child Tax Credit can be worth as much as $2,000 per child for Tax Years 2018-2025. 
  • For Tax Years 2018-2025, the maximum refundable portion of the credit is $1,400 (equal to 15% of earned income above $2,500). If your tax is $0 and your total earned income is at least $2,500, you can claim the refundable part of the credit - see the Additional Child Tax Credit section below.
  • For 2020, the Child Tax Credit begins to phase out (decrease in value) at an adjusted gross income of $200,000 for Single or at $400,000 for Married Filing Jointly).
  • When figuring your income for the purposes of the Child Tax Credit, you must include any foreign income exclusions.
  • Please refer to the Child Tax Credit and Credit for Other Dependents Publication 972 for more details. Or, contact one of our Taxperts if you have specific questions.

Use the eFile.com KIDucator tax educator tool below to help you find out if you are eligible to claim the Child Tax Credit on your 2020 Tax Return:

Find out if your child qualifies you for the Child Tax Credit!

To qualify for the Child Tax Credit, you must have a child or dependent who meets all of the following requirements:

  • Age: The child must have been 16 or younger on December 31 of the tax year.
  • Citizenship: The child must be a United States citizen, a United States national, or a resident alien.
  • Dependent: The child must be claimed as a dependent on your tax return. See the free eFile.com DEPENDucator if you are not sure if someone qualifies as a dependent.
  • Relationship: The child must be related to you in one of the following ways: son, daughter, stepson, stepdaughter, brother, sister, stepbrother, stepsister, grandchild, niece, or nephew. This includes any legally adopted child, any child lawfully placed with you in preparation for adoption, and any foster child lawfully placed in your care.
  • Residency: The child must have lived with you for more than half of the year (stayed with you for at least 183 nights). Temporary absences for special circumstances are generally acceptable and special rules may apply if you are divorced or for other certain circumstances.
  • Support: The child must NOT have provided more than half of his or her own financial support for the year.

Rather than worry about how much of the credit you qualify for, let the eFile platform do the work for you. Report your tax figures, income, and some information about your dependent(s) and the app will determine how much of the credit you qualify for. Sign up for an eFile.com account here so you can prepare and e-file your tax return now.

Additional Child Tax Credit

The Additional Child Tax Credit or ACTC is a refundable credit that you may receive if your Child Tax Credit is greater than the total amount of income taxes you owe, as long as you had an earned income of at least $2,500. For 2020 returns, the ACTC is worth up to $1,400.

Important: If you qualify and claim the Additional Child Tax Credit on a tax return, you might get a refund even if you do not owe any tax.

2020 Tax Year Additional Child Tax Credit (ACTC) Relief: If your earned income (e.g. W-2 wage income and/or net earnings from self-employment and/or certain disability payments) was higher in 2019 than in 2020, you can use the 2019 amount to figure your ACTC for 2020. This temporary relief is provided through the Taxpayer Certainty and Disaster Tax Relief Act of 2020.

Attention: When you prepare and eFile your taxes on eFile.com, we suggest you enter 2019 as the eFile tax app will either pick your 2019 or 2020 income - whichever is more advantageous for you - and give you the higher tax credit. Here are the instructions on how to enter your 2019 income on eFile.com:

Schedule 8812, Additional Child Tax Credit, is the outputted form that the eFile tax app will generate when you e-File your 2020 Taxes with eFile.com. It is used to determine if you qualify for the credit and to calculate the amount of the credit you will receive. eFile.com will do all required math and generate the form for you when you prepare your return.

For 2020, the Child Tax Credit is at least partially refundable if you had a minimum earned income of $2,500. Partially refundable means that some of the credit is nonrefundable while some is refundable and the amounts will be reported in two separate sections of your return. A nonrefundable credit means that the credit cannot be used to increase your tax refund or to create a tax refund when you don’t already have one. Refundable tax credits, on the other hand, are treated as payments of tax you made during the year. When the total of these credits is greater than the tax you owe, the IRS sends you a tax refund for the difference. See more details on refundable and nonrefundable tax credits.

Only one taxpayer (or married couple filing jointly) may claim any one child for the purposes of the Child Tax Credit and the Additional Child Tax Credit. If a child is claimed as a dependent on more than one tax return, the IRS will determine who gets the claim according to a set of tiebreaker rules. See details on dependent claiming disputes.

Child Tax Credit 2021

As a result of the American Rescue Plan Act (ARPA) of 2021, the future of various tax breaks and credits has been changed for 2021. This may lead to future changes that could stay, but, as of now, these changes only apply to to the 2021 tax return to be filed in 2022.

The Child Tax Credit will work differently in 2021 as well as see an increased amount. The credit will allow 17 year-old dependents to qualify and provide up to $3,000 per qualifying child or $3,600 per qualifying child under age 6. The credit will also be fully refundable - it has always been a partially refundable credit - and is being made more accessible for those without taxable income by removing the $2,500 earnings floor. In other words, you do not need to have any earned income to claim the credit.

Similarly to the stimulus payments and the Recovery Rebate Credit, you will be able to claim a portion of the Child Tax Credit as an advance payment. Throughout the year, you may be eligible to receive payments on a scheduled basis in 2021 and claim the remainder of the credit on your 2021 Tax Return in 2022.

The IRS is deciding whether to issue these advance payments as monthly payments or period payments. Both would begin in July and continue through December of 2021. Monthly payments, for example, would give qualifying taxpayers a monthly payment of $300 for dependents under 6 years old and $250 per month for dependents under 17.

A notable change, however, is that the maximum income threshold has changed significantly. For Tax Year 2021, single taxpayers will be eligible for the full credit if their adjusted gross income (AGI) is at or below $75,000 or $150,000 for married filing jointly. Additionally, the limit for the phaseout will be $112,000 for head of household. The amount will phaseout by $50 per $1000 over the threshold. This is only if taxpayers claim the increased credit - the normal, $200,000 single/$400,000 married filing joint threshold still applies if a taxpayer does not qualify for the increased credit and, instead, claims the regular credit with pre-ARPA rules. When you file your 2021 tax return on eFile.com, we will calculate this for you and determine the credit that is most beneficial to you based on your tax information.

You may be eligible to receive a fully refundable Child Tax Credit if your income is within the above mentioned threshold. Additionally, you will likely be able to claim periodic installments of this payment during the tax year. The ARPA states that a program will be established that will pay, in advance, 50% of the Child Tax Credit during 2021 and the taxpayer will have to claim the remaining 50% on their tax return.

When you prepare your tax return on eFile.com, we will automatically check to see if you qualify for the Child Tax Credit. If you qualify for the credit, the exact amount will be calculated for you. We will select the right form and fill it out in order for you to get your maximum credit amount.

Child-Related Tax Savings

Here are other ways you can save taxes on raising children: 

  • Child and Dependent Care Credit: You may be able to deduct up to $3,000 for one dependent, or up to $6,000 for more than one dependent with the Child and Dependent Care Tax Credit.
  • Adoption Tax Credit: If you adopted a child, or if you are in the process of adopting a child, you may qualify for the Adoption Tax Credit.
  • Filing Status: If you are unmarried and your child lived with you for more than half of the year, you may qualify for a higher standard deduction and lower tax rates by filing as Head-of-Household.
  • Credits and Deductions: Your child may qualify for different education credits or education deductions when enrolled in a qualifying school program.

See what other tax credits and tax deductions may be available to you.