How the Child Tax Credit Works

The child tax credit (CTC) is one of the most significant family-oriented provisions in the U.S. federal tax code. It reduces your income tax liability on a dollar-for-dollar basis for each qualifying dependent child. For the 2023 tax year, the credit is worth up to $2,000 per qualifying child under age 17 at the end of the tax year. Unlike a deduction, which lowers your taxable income, a credit directly lowers the amount of tax you owe. The CTC is partially refundable—meaning that if the credit exceeds the amount of tax you owe, you may receive a portion as a refund, even if you have no tax liability after other credits. This tool uses a simplified version of the rules to give families a quick estimate of the benefit they could receive when filing their federal return.

A child must meet several criteria to qualify. They must be your son, daughter, stepchild, foster child, brother, sister, stepsibling, or a descendant of any of these (such as a grandchild or niece). They must have lived with you for more than half the year, be a U.S. citizen or resident, have a valid Social Security number, and be claimed as a dependent on your return. Importantly, the child must not provide more than half of their own financial support. If these conditions are met, the child generally counts toward the credit. In addition, the taxpayer claiming the credit must have earned income above a minimal threshold.

The amount of credit you receive depends not only on how many qualifying children you have but also on your income. Congress designed the CTC to phase out for higher-income households. The phase-out begins once your adjusted gross income (AGI) exceeds a certain threshold that varies by filing status. For every dollar of AGI above the threshold, the credit is reduced by five cents (5%). Thus, households with very high incomes may see their credit reduced to zero. The calculator applies the most common thresholds from recent tax years:

Filing Status	AGI Threshold
Single	$200,000
Married Filing Jointly	$400,000
Head of Household	$200,000
Married Filing Separately	$200,000

Above these levels, the following formula determines the allowable credit:

$\mathrm{CTC}=\max (0,B-0.05(\mathrm{AGI}-T\left)\right)$

In the above equation, B is the total base credit calculated as the number of qualifying children times $2,000. The variable T is the AGI threshold associated with your filing status from the table. The credit is never negative—once the phase-out amount exceeds the base credit, your CTC simply drops to zero. The refundability of the credit is also limited. The so-called Additional Child Tax Credit allows some taxpayers to receive a refund of up to $1,500 per child if the credit exceeds their tax liability. This tool does not calculate the exact refundable portion but reminds users to check their tax software or consult a professional for an accurate determination based on their earned income and other credits. Because tax laws change, and special legislation— such as the expanded credit in 2021—can alter both the amount and the refundability, always reference IRS publications for the most current information.

The CTC can dramatically lower the tax burden of families, making it easier to afford child care, education, and everyday necessities. For example, a married couple with two young children and an AGI of $85,000 could receive a $4,000 credit, cutting their federal tax bill significantly. If the same couple saw their income rise to $415,000, the credit would begin to phase out because their AGI is $15,000 above the $400,000 threshold. Five percent of that $15,000 is $750, reducing their credit from $4,000 to $3,250. The calculator reproduces this logic instantly once you enter your household details.

When planning finances, families should consider how additional income, such as bonuses or investment gains, might affect eligibility. Because the phase-out uses AGI, contributions to pre-tax retirement accounts, health savings accounts, and flexible spending accounts can indirectly preserve more of your credit by lowering AGI. Likewise, if you are close to a threshold, timing deductions or income recognition across tax years may help optimize your credit. Keep in mind that different tax years may have different credit amounts or rules. The calculator’s inputs can be adjusted to reflect projected changes in future legislation or personal circumstances.

While the child tax credit is a powerful tool for reducing federal taxes, it interacts with other provisions, such as the earned income tax credit and dependent care credit. Each of these has its own eligibility rules and phase-outs. Tax planning should therefore look at the whole picture. The table and formula above provide a transparent way to approximate the CTC, but the true outcome on your return depends on a variety of factors, including alternative minimum tax, foreign tax credits, and self-employment taxes. This calculator offers an educational starting point. Before making major financial decisions, consult IRS instructions or a qualified tax advisor to ensure you are compliant and optimizing your refund or tax payment.