Understanding the Child Tax Credit in 2025

Main takeaways

🥸 The Child Tax Credit offers up to $2,000 per qualifying child for 2025, easing financial strain for families.

📝 Up to $1,700 of the credit is refundable through the Additional Child Tax Credit, helping lower-income families.

💵 The credit phases out for higher-income families, reducing by $50 for every $1,000 over income limits.

Navigating the complexities of tax credits can be daunting for parents aiming to optimize their financial benefits. The child tax credit (CTC) is a pivotal component of the U.S. tax system, designed to provide relief to families with qualifying children. As we approach the 2025 tax year, understanding the nuances of the CTC becomes essential.

This parent guide delves into the specifics of the child tax credit for 2025, anticipated changes beyond 2025, and addresses common questions to equip parents with the knowledge needed for effective tax planning.

This article is for informational purposes only and does not constitute professional tax, financial, or legal advice. Tax laws and regulations are subject to change, and their application may vary based on individual circumstances. For personalized tax guidance, please consult a qualified tax professional or financial advisor.

The child tax credit is a federal tax benefit aimed at assisting parents and guardians in offsetting the costs associated with raising children. For the 2025 tax year, the CTC maintains several key features:

Credit amount: Eligible taxpayers can claim up to $2,000 for each qualifying child under the age of 17.
Refundability: Up to $1,700 of the credit is refundable through the additional child tax credit (ACTC), meaning families can receive this portion even if they owe no federal income tax.
Income phase-out thresholds: The credit begins to phase out for taxpayers with modified adjusted gross income (MAGI) exceeding $200,000 for single filers and $400,000 for married couples filing jointly.‍
Qualifying child criteria: The child must be under 17 at the end of the tax year, have a valid Social Security number, and live with the taxpayer for at least half of the year.

How does child tax credit work?

The child tax credit helps reduce the amount of federal income tax owed by parents or guardians with qualifying children. If the credit amount is greater than the total tax liability, up to $1,700 per child may be refunded through the additional child tax credit (ACTC). The credit phases out for higher-income households, so understanding the income thresholds is essential for families planning their taxes effectively.

Who qualifies for the child tax credit?

To qualify for the child tax credit in 2025, families must meet the following criteria⁴:

The child must be under 17 years old at the end of the tax year.
The child must be a U.S. citizen, U.S. national, or U.S. resident alien with a valid Social Security number issued before the tax filing deadline.
The child must have lived with the taxpayer for more than half of the year. Exceptions apply for temporary absences, such as school, medical care, or military service.
The child must be directly related to the taxpayer, such as a son, daughter, stepchild, foster child, brother, sister, or a descendant of these (e.g., grandchild, niece, or nephew).
The child must be claimed as a dependent on the taxpayer’s return and cannot file a joint return unless only to claim a refund of withheld taxes.
The child must not have provided more than half of their own financial support during the tax year.
The taxpayer's income must fall within the eligibility limits to receive the full or partial credit.

Child tax credit 2025: when will it start?

The IRS has announced that the 2025 tax filing season will begin on January 27, 2025. Parents can claim the child tax credit when they file their federal income tax return. If eligible, families may receive a portion of the credit as a refund, depending on their income and tax liability.

Anticipated changes beyond 2025

Unless new legislation is enacted, the child tax credit is set to revert to pre-2018 provisions after 2025. The expected changes include⁵:

Reduced credit amount: The maximum credit will decrease to $1,000 per qualifying child.
Lower phase-out thresholds: The credit will begin phasing out at $75,000 for single filers and $110,000 for married couples filing jointly.
Refundability adjustments: The refundable portion will be limited to 15% of earnings above $3,000.

How does the child tax credit phase-out for higher-income families?

The child tax credit phases out based on income in two stages⁶:

For single filers earning above $200,000 and joint filers earning above $400,000, the credit is reduced by $50 for every $1,000 of income exceeding these limits.
After reaching a certain income level, the credit is completely phased out, meaning higher-income families may not qualify for any portion of the credit.

What is the additional child tax credit and how is it calculated?

The additional child tax credit (ACTC) allows taxpayers to receive a refund for the unused portion of the CTC. It is calculated as follows:

Any portion of the CTC that exceeds a taxpayer’s tax liability is eligible for the ACTC.
Up to $1,700 per child can be refunded.
The refundable amount is 15% of earned income above $2,500, up to the ACTC limit.

Can the child tax credit be claimed if parents are divorced or separated?

Yes, but only the custodial parent (the parent with whom the child lives for more than half of the year) can claim the child tax credit. However, the non-custodial parent may be able to claim the credit if the custodial parent signs IRS Form 8332, releasing the exemption.

Important Note: Claiming tax credits improperly can result in penalties or delays in tax processing. Always review IRS guidelines and consult a qualified tax professional for guidance on your specific situation.

How does the child tax credit differ for dependents over 17?

Children over the age of 17 do not qualify for the child tax credit. Instead, parents may claim the credit for other dependents, which provides a non-refundable credit of up to $500 per dependent. This credit applies to older children, elderly parents, or other dependents who do not meet the CTC criteria.

Receiving your child tax credit refund in your Modak account¹

For parents looking to simplify their finances and manage their child's funds efficiently, receiving a tax refund—including the child tax credit refund—directly into a Modak account can be a great option. With Modak’s Visa® debit card for kids and teens¹, parents can deposit tax refunds into their child’s account, helping them learn financial responsibility while ensuring secure access to their money.

How to direct your tax refund to a Modak account

When filing your taxes, follow these steps to have your refund, including the refundable portion of the child tax credit (ACTC), deposited into your child’s Modak account:

Locate your Modak account and routing number
- In the Modak app, navigate to your child’s account settings to find the account and routing number.
Choose direct deposit on your tax return
- When filing your federal tax return, select direct deposit as your refund method.
- Enter the Modak account and routing number as the designated deposit destination.
Ensure eligibility for refunds
- Since Modak accounts are designed for kids and teens, make sure that the refund is intended for your child (e.g., earned wages, allowances, or tax benefits related to their financial activities).
- If you're depositing the refund into your own linked Modak account, you can easily transfer funds to your child’s account through Modak’s instant parent-to-kid transfers.

Mom and teen boy using their phones together

Important information about Fund Access

Please note: Funds deposited into a Modak account can only be spent using the Modak Visa® debit card, whether as a physical or virtual card. ATM withdrawals and cash access are not supported at this time. Once the refund is received in a Modak account, the only way to access the funds is through purchases made with the debit card.

Before choosing to deposit your tax refund into a Modak account, please consider the spending limitations. Since ATM withdrawals and cash withdrawals are not available, ensure that a card-based spending method aligns with your needs.

Important information about Fund Access

Benefits of using Modak for tax refund deposits

Teaches financial literacy: Depositing tax refunds into a Modak account helps kids and teens learn about money management, saving, and responsible spending.
Secure and fast access: No waiting for paper checks—your refund is deposited directly and safely into your Modak account.‍
Earnings and rewards: Parents can allocate a portion of the refund to their child’s savings goals and chore payments to encourage smart spending habits.

Open a Modak account today and set up direct deposit for your tax refund—because every dollar can be a step toward smarter money habits for your child!

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Modak is a financial technology company and not a FDIC-insured bank.Checking account and the Modak Visa® debit card issued by Lewis & Clark Bank, Member FDIC. Funds deposited into checking account may be eligible for up to $250,000 of FDIC insurance. The FDIC’s deposit insurance coverage only protects against the failure of an FDIC-insured depository institution.
Fees for expedited or premium services may apply. Find out more in our Cardholder agreement.
Fees for expedited or premium services may apply. Modak charges $0.50 for debit cards (and 3% extra for credit cards and Apple/Google Pay) when you load your kid’s modak card with your debit or credit cards. Do note that our normal ACH - funding via your other bank accounts - is free if next-day option is selected. Review your bank's terms and conditions for more information on the fee schedule.
Internal Revenue Service. (n.d.). Child tax credit. IRS. Retrieved March 18, 2025, from https://www.irs.gov/credits-deductions/individuals/child-tax-credit
Tax Policy Center. (n.d.). What is the child tax credit? Retrieved March 18, 2025, from https://taxpolicycenter.org/briefing-book/what-child-tax-credit
Congressional Research Service. (2021, March 18). The child tax credit: Current law and legislative proposals. Retrieved from https://crsreports.congress.gov/product/pdf/R/R41873

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Understanding the Child Tax Credit in 2025

Main takeaways

How does child tax credit work?

Who qualifies for the child tax credit?

Child tax credit 2025: when will it start?

Anticipated changes beyond 2025

How does the child tax credit phase-out for higher-income families?

What is the additional child tax credit and how is it calculated?

Can the child tax credit be claimed if parents are divorced or separated?

How does the child tax credit differ for dependents over 17?

Receiving your child tax credit refund in your Modak account¹

How to direct your tax refund to a Modak account

Important information about Fund Access

Important information about Fund Access

Benefits of using Modak for tax refund deposits

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