OBBBA Child Tax Credit

Under pre-OBBBA law, the child tax credit would return to pre-2017 levels after December 31, 2025. This means that the credit amount would drop from $2,000 to $1,000 per child, the child Social Security number (SSN) requirement would be eliminated, and fewer American families would qualify for the credit as the income phase-out levels return to much lower thresholds. Additionally, the $500 nonrefundable credit for non-child dependents was set to expire after December 31, 2025.

OBBBA: Makes permanent the doubled child tax credit of $2,000 per child, maintains the increased income phase-out thresholds, and maintains the nonrefundable, non-child dependent credit.

Additionally, this provision permanently increases the nonrefundable child tax credit to $2,200 per child beginning in tax year 2025 and permanently indexes the nonrefundable credit amount for inflation beginning after tax year 2025 (rounded down to the nearest $100).

The refundable credit limit of $1,400 is subject to inflation adjustment, effective starting after 2024.

Furthermore, the requirement of the child’s SSN for purposes of claiming the credit is maintained and expanded upon to require the taxpayer’s SSN and, for joint filers, either spouse’s SSN, to claim the credit. The SSNs provided must be considered work-eligible to claim the credit.

There are different types of Social Security cards, reflecting different work authorization statuses for non-citizens. These cards are visually different and indicate whether the holder has unrestricted work authorization or work authorization restricted by the Department of Homeland Security (DHS)

Additionally, this provision permanently increases the nonrefundable child tax credit to $2,200 per child beginning in tax year 2025 and permanently indexes the nonrefundable credit amount for inflation beginning after tax year 2025 (rounded down to the nearest $100). 

 

*The inflation adjustment is the percentage by which chained CPI for the preceding calendar year exceeds the chained CPI for 2024.

Refundable Tax Credit: The amount of the refundable credit is based on an earned income computation. Taxpayers with 3 or more qualifying children also take into consideration the amount of Social Security and Medicare taxes they paid. Further, the additional child tax credit for these taxpayers will be limited by any earned income credit claimed by the taxpayer.

The credit is treated as refundable in an amount equal to 15 percent of earned income more than $2,500 (the “earned income formula”).  Earned income generally has the same definition as for purposes of the earned income tax credit and is defined as the sum of wages, salaries, tips, and other taxable employee compensation plus net self-employment earnings.  For purposes of the additional child tax credit, only items considered in computing taxable income are treated as earned income.  However, combat pay that is excluded from gross income under IRC Section 112 is also considered.  

Other Dependent Credit – The $500 nonrefundable credit for each dependent of the taxpayer other than a qualifying child is made permanent. This credit is not adjusted for  inflation.  A dependent child who does not have an SSN, and therefore doesn’t qualify for the CTC, but who has an IRS individual taxpayer identification number (ITIN) or IRS-issued ATIN (Adoption Taxpayer Identification Number) will be an eligible dependent for the nonrefundable $500 credit. This credit will also be available for a dependent child who reaches age 17 before the end of the tax year, as well as non-child dependents such as a parent. To qualify, the person’s gross income must be less than the inflation adjusted exemption amount, previously discussed, which is $5,200 for 2025. It is projected to be $5,300 for 2026. 

Phaseout: The legislation makes permanent the income phaseout threshold amounts of $400,000 for taxpayers filing jointly and $200,000 for all other taxpayers.  Both the child and dependent credits phase out for taxpayers with “modified adjusted gross income” above this non-inflation indexed thresholds and applies both to the child tax credit and the other dependent credit. 

 

The otherwise allowable child tax credit amount is reduced by $50 for each $1,000 (or fraction thereof) of modified adjusted gross income (“modified AGI”) over the applicable threshold amount.  For purposes of this limitation, modified AGI means AGI increased by any amount excluded from gross income under section 911 (foreign earned income exclusion), 931 (exclusion of income for a bona fide resident of American Samoa), or 933 (exclusion of income for a bona fide resident of Puerto Rico).

Qualifying Child - A qualifying child for the child tax credit is a child who:

(1)  Is the taxpayer’s son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them (for example, a grandchild),

(2)  Was under age 17 at the end of the tax year,

(3)  Did not provide over half of his or her own support for the tax year,

(4)  Lived with the taxpayer for more than half of the tax year,

(5)  Only a child who is a U.S. citizen, national, or resident may be a qualifying child; citizens of contiguous countries are ineligible under the child tax credit definition of qualifying child.

(6)  Was claimed as the taxpayer’s dependent, and

(7)  Has a Social Security number that is valid for employment and is issued before the due date of the tax return (including extensions).

Adopted child - An adopted child is always treated as the taxpayer’s own child.  An adopted child includes a child lawfully placed with the taxpayer for legal adoption.  If the taxpayer is a U.S. citizen or U.S. national and the adopted child lived with the taxpayer all year as a member of the taxpayer’s household during the tax year, that child meets condition (5) above to be a qualifying child for the child tax credit.

Exceptions to “time lived with the taxpayer” condition - A child is considered to have lived with the taxpayer for all the tax year if the child was born or died during the year and the taxpayer’s home was this child’s home for the entire time, he or she was alive. Temporary absences for special circumstances, such as for school, vacation, medical care, military service, or business, also count as time lived with the taxpayer. There are also special rules for kidnapped and missing children. 

Child Identification Requirement – If a taxpayer has a qualifying child who does not have the required SSN, the child will not qualify to be claimed for the CTC or ACTC on either an original or an amended tax return. The required SSN is one that is valid for employment and is issued before the due date of the return (including extensions).

If a qualifying child was born and died during the tax year, and has not been issued an SSN, attach to the tax return a copy of the child's birth certificate, death certificate, or hospital records. The document must show the child was born alive.

If the taxpayer’s qualifying child does not have the required SSN but has another type of taxpayer identification number issued on or before the due date of the return (including extensions), the taxpayer may be able to claim the Other Dependent Credit (ODC) for that child. 

Parent(s) Identification Requirement – OBBBA makes the rule for the parents like that of the child in that the parent(s) must have a valid SSN to claim the child tax credit. 

Married Individuals - The legislation applies rules like the rules of IRC Section 32(d), meaning married individuals must file a joint return to receive the child tax credit. 

Marital status is determined under IRC Section 7703(a). Under the legislation, an individual is not treated as married if the individual:

(1) Is married and does not file a joint return for the taxable year,

(2) Resides with a qualifying child for more than one-half of the taxable year, and

(3) Either does not have the same principal place of abode as their spouse during the last six months of the taxable year or has a decree, instrument, or agreement (other than a decree of divorce) described in IRC Section 121(d)(3)(C) with respect to their spouse and is not a member of the same household of their spouse by the end of the taxable year.

Application of the child tax credit in the territories of the United States - The three mirror Code territories (Guam, the Commonwealth of the Northern Mariana Islands, and the U.S. Virgin Islands) have, under their mirror Codes, a child tax credit identical to that in the Internal Revenue Code.  A resident of one of these territories claims the child tax credit on the income tax return filed with the territory’s revenue authority.