Budget Basics: What Is the Child Tax Credit?
The child tax credit (CTC) is a tax expenditure designed to make raising children more affordable by easing the financial burden faced by families. The CTC, created in 1997, is a per-child credit for families. It can be claimed to reduce the amount of taxes a taxpayer owes. It is also partially refundable, so if a taxpayer’s liability is smaller than their tax credit, they may receive the difference up to a specified maximum.
The Joint Committee on Taxation estimated that the credit cost $128 billion in reduced revenues in 2025, with 46 million taxpayers claiming the credit on their federal return.
How Does the CTC Work?
The CTC is available to taxpayers with children age 16 and under who are claimed as dependents. Taxpayers are eligible to receive a credit equal to a percentage of their earnings, up to a maximum amount of $2,200 per qualifying child. For tax year 2025 (usually filed by April 2026), the credit will phase-in depending on a taxpayer’s income until it reaches the maximum credit of $2,200 for filers with one child and incomes above $36,071. The credit then phases out at incomes of $200,000 for single taxpayers and $400,000 for joint filers. Of the $2,200 maximum credit per child, up to $1,700 will be refundable in 2025. The refundable portion of the tax credit is called the additional child tax credit (ACTC).
Lawmakers have made a number of changes to the CTC over the years:
- In 2001, legislation increased the amount of the credit and made it partially refundable.
- In 2017, the Tax Cuts and Jobs Act (TCJA) made certain elements of the credit more generous, including doubling the maximum credit and increasing the amount of income at which the credit begins to phase out.
- In 2021, the American Rescue Plan Act (ARPA) made additional — but temporary — changes including increasing the age of eligible children, increasing the credit amount by up to 80 percent, and eliminating the cap on the refundable portion. That expansion of the tax credit expired in 2022.
- In 2025, the One Big Beautiful Bill Act (OBBBA) made permanent the TCJA’s doubling of the maximum credit and increase in the refundability of the credit. The legislation also permanently expanded the maximum credit by another $200 to $2,200 and indexed both the maximum credit and refundable threshold for inflation.
The expansion of the child tax credit under the ARPA, along with other programs, was associated with a significant reduction in child poverty during the years it was in effect. For example, in 2021, some measures of child poverty dropped by nearly 60 percent compared to pre-pandemic levels.
Who Benefits From the Child Tax Credit?
Most of the tax benefits from the CTC go to middle- and high-income taxpayers. In 2025, 80 percent of the tax benefits from the CTC went to taxpayers with incomes above $50,000. Low-income taxpayers are not eligible for the full credit because of the income phase-in. A single filer is not eligible for the full refundable portion until they make more than $13,833, and the full, nonrefundable credit is not available for those making less than $36,071. By comparison, the earned income tax credit (EITC), which also benefits children, targets lower income taxpayers.
A study by researchers at Columbia University found that 23 million children did not generate the full tax credit under the CTC structure prior to the ARPA. Of those children, 50 percent are Black non-Hispanic and Hispanic, and 70 percent are the children of single parents who are female.
Effects of the CTC
While most of the benefits from the CTC flow to middle- and high-income families, it remains a significant tool for reducing child poverty. In 2023, the CTC was the second largest program benefiting children ($114 billion) according to the Urban Institute, just behind federal expenditures for children through Medicaid ($135 billion) and more than the Supplemental Nutrition Assistance Program ($60 billion). The CTC and EITC combined reduced child poverty by 4.7 percent in 2023. Moreover, a report from the Urban Institute suggests that over the long-term, the EITC and CTC can improve children’s educational and health outcomes along with other benefits.
The Child Tax Credit and the Budget
The CTC is among the largest tax expenditures and has significant implications for America’s fiscal picture. Over the past several years, the cost of the tax expenditure has grown as lawmakers repeatedly enhanced the maximum credit and expanded refundability of the credit. Expenditures on the CTC increased after the enactment of the TCJA, when the maximum credit was doubled. According to the most recent Internal Revenue Service data, the CTC was most costly in 2021, when the credit was temporarily expanded in response to the COVID-19 pandemic.
In 2025 the CTC was the fifth most expensive tax expenditure and cost $128 billion, including $81 billion in nonrefundable tax credits and $48 billion in refundable. With the OBBBA permanently expanding the CTC, expenditures for the credit are projected to remain high through 2029, according to the Joint Committee on Taxation.
What Reforms to the CTC Have Been Proposed?
Proposed reforms to the CTC generally center on making the credit available to more low-income families as well as making it more generous. The Tax Policy Center analyzed the effects of several possible reforms to the CTC, including enhancing the phase-in of the credit, increasing the maximum credit, and reforming the credit to better target low-income families.
Conclusion
The CTC is a powerful and popular tool that provides assistance to families with children, and while it represents a relatively modest part of overall government spending, it is one of the largest tax expenditures and a key part of our nation’s fiscal outlook.
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Further Reading
Budget Basics: Tax Expenditures
Tax expenditures can come in the form of exclusions, exemptions, deductions, and credits.
How Did the One Big Beautiful Bill Act Change Tax Policy?
See how OBBBA restructured the tax landscape across four major areas: individual tax provisions, business tax provisions, energy tax credits, and health-related tax changes.
Should We Eliminate the Social Security Tax Cap?
There have been a number of proposals to increase, eliminate, or otherwise adjust the payroll tax cap as a way to shore up Social Security’s finances.