8.4 Child Tax Credit & Additional CTC

Child Tax Credit & Additional Child Tax Credit (2025)

The Child Tax Credit (CTC) is a major family-related tax benefit. The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, made several changes for tax year 2025 and beyond:

• Raised the maximum credit from $2,000 to $2,200 per qualifying child (and indexes it for inflation going forward)
• Made the elevated phase-out thresholds ($200K / $400K) permanent — no scheduled 2026 reversion to $1,000 / pre-TCJA thresholds
• Added a new SSN requirement: the taxpayer must have a valid Social Security Number (on a joint return, at least one spouse)

Overview of Child Tax Credit for 2025

The $2,200 CTC is not fully refundable. The nonrefundable portion ($500 per child) can only reduce tax liability to zero. The remaining $1,700 may be received as a refund through the ACTC.

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Qualifying Child Requirements (The 6 Tests)

To claim the $2,200 Child Tax Credit, a child must meet ALL six requirements:

NEW OBBBA SSN Requirement (Filer Side)

Beginning with the 2025 tax year, the taxpayer must have a valid Social Security Number issued by the return due date to claim the CTC or ACTC. On a joint return, only one spouse needs a valid SSN; the other spouse must have an SSN or ITIN issued by the due date. Prior to OBBBA, a parent could file with an ITIN as long as the child had an SSN. That option ended: a return on which no filer has a valid SSN cannot claim the $2,200 CTC for any child, regardless of the child's SSN status (though the $500 ODC may still apply).

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Phase-Out Rules

Formula: Credit Reduction = ⌈(MAGI − Threshold) / $1,000⌉ × $50 (round UP any fraction)

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Phase-Out Calculation Example

Scenario: Tom and Lisa are MFJ with 2 qualifying children. MAGI = $425,000.

1. Base Credit: 2 × $2,200 = $4,400
2. Excess over threshold: $425,000 − $400,000 = $25,000
3. $1,000 increments: 25
4. Reduction: 25 × $50 = $1,250
5. Final Credit: $4,400 − $1,250 = $3,150

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Additional Child Tax Credit (ACTC) — The Refundable Portion

ACTC allows lower-income taxpayers to receive a refund for unused CTC.

• Maximum refundable amount: $1,700 per qualifying child
• Earned income threshold: Earned income must exceed $2,500
• Formula: 15% × (Earned Income − $2,500), capped at $1,700/child

ACTC = Lesser of: (1) Unused CTC after reducing tax to zero, OR (2) 15% × (Earned Income − $2,500)

ACTC Example

Scenario: Maria is single with 2 qualifying children. Wages = $18,000; tax liability before credits = $500.

1. Maximum CTC: 2 × $2,200 = $4,400
2. Nonrefundable portion used: $500 (reduces tax to zero)
3. Unused CTC: $4,400 − $500 = $3,900
4. Maximum ACTC: 2 × $1,700 = $3,400
5. 15% × ($18,000 − $2,500) = 15% × $15,500 = $2,325
6. ACTC: lesser of $3,400 or $2,325 = $2,325 refund

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Credit for Other Dependents (ODC)

$500 nonrefundable credit for dependents who do NOT qualify for CTC:

• Children age 17 or older
• Children with ITINs (instead of SSNs)
• Dependent parents and other qualifying relatives
• College students age 19–23 supported by the taxpayer

ODC uses the same $200,000 / $400,000 phase-out thresholds and the same $50-per-$1,000 reduction.

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SSN vs. ITIN: Critical Distinction

The SSN must be valid for employment and issued by the original or extended due date of the return.

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Schedule 8812 — Credits for Qualifying Children and Other Dependents

All CTC, ACTC, and ODC calculations are completed on Schedule 8812.

Where it goes on Form 1040:

• Nonrefundable CTC/ODC: Line 19
• Refundable ACTC: Line 28

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Historical Context: CTC Evolution

OBBBA replaced the prior TCJA sunset language with permanent rules. The CTC will continue to be indexed for inflation in $100 increments going forward.

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EA Exam Tips — Child Tax Credit

1. 2025 maximum is $2,200 per qualifying child (up from $2,000 — OBBBA permanent)
2. $1,700 refundable as ACTC (unchanged from 2024)
3. Age 17 cutoff — child must be under 17 on December 31
4. NEW OBBBA rule: the taxpayer (one spouse on a joint return) and the qualifying child need valid SSNs; a return with no valid-SSN filer can no longer claim CTC
5. Phase-out thresholds: $200,000 (Single/HoH/MFS) and $400,000 (MFJ) — permanent post-OBBBA
6. $50 reduction per $1,000 — round UP any partial $1,000
7. ACTC formula: 15% × (Earned Income − $2,500), max $1,700/child
8. Residency: must be more than half the year (not just half)
9. ODC: $500, nonrefundable, applies to ITIN children and 17+ dependents
10. 3+ children exception: alternative ACTC calculation (Part II-B) using SS tax paid