Child Tax Credit: What parents need to know about this valuable tax break

Raising children is expensive, and while the IRS won’t cover daycare costs or your teenager’s endless snack cravings, the Child Tax Credit (CTC) is designed to ease the financial burden for families.

With tax law changes happening regularly, it’s crucial to understand how the Child Tax Credit 2025 works, who qualifies, and how you can maximize your refund.

Whether you're filing your taxes for the first time as a parent or just trying to keep up with the latest updates, this guide breaks it all down.

What is the Child Tax Credit?

The Child Tax Credit (CTC) is a federal tax benefit aimed at reducing the tax burden for families with dependent children. It can lower your tax bill dollar-for-dollar and, in some cases, provide a refund even if you don’t owe taxes.

For 2025, the maximum federal Child Tax Credit is:

• $2,000 per qualifying child under 17
• Up to $1,600 of the credit is refundable (meaning you can still get this amount even if you don’t owe taxes)

However, this credit isn't automatic – you need to meet eligibility criteria and file the right paperwork to claim it.

Who qualifies for the Child Tax Credit in 2025

Not every child or parent qualifies for the CTC. The IRS has strict guidelines to determine eligibility.

Child eligibility requirements

To qualify for the Child Tax Credit 2025, your child must meet these six requirements:

Income eligibility requirements

The Child Tax Credit 2025 is phased out for higher-income households.

NB! If your income exceeds the phase-out threshold, your credit reduces by $50 for every $1,000 above the limit.

How to claim the Child Tax Credit on your 2025 tax return

Claiming the Child Tax Credit is straightforward if you meet the requirements.

Step 1: Gather your documents

You will need:

• Your child’s Social Security Number (SSN)
• Your tax return, Form 1040
• Proof of residency, such as a school or medical record showing your child’s address
• Income statements, like W-2s or 1099s

Form 1040 preview

Step 2: Fill out the correct tax forms

When you file your 2025 tax return in 2026, you will claim the CTC on Form 1040 and attach Schedule 8812 to calculate any refundable portion.

Pro tip: If you are eligible for a refund, opting for direct deposit can get your money faster than waiting for a paper check.

Refundable vs. non-refundable Child Tax Credit

Not all of the Child Tax Credit 2025 is refundable, which confuses many taxpayers.

 

Pro tip: Even if you do not owe federal taxes, filing your return is essential to claim any refundable portion of the credit.

State-level Child Tax Credits in 2025

Several states have introduced their own versions of the Child Tax Credit, providing additional relief for families.

NOTE! Each state has different requirements, so check with your state’s Department of Revenue for up-to-date details.

The future of the Child Tax Credit

The Child Tax Credit 2025 remains at $2,000 per child, but political discussions continue about potential expansions.

Possible changes on the horizon

• Increase in refundable portions. Lawmakers are debating raising the refundable amount to $2,000 per child instead of the current $1,600
• Expanding eligibility for lower-income families. Some proposals suggest reducing phase-out thresholds or making the full credit refundable
• State-level expansions. More states may introduce their own credits to supplement the federal benefit

Pro tip: Keep an eye on IRS updates and tax policy changes, as Congress may adjust the CTC rules before 2026.

Common mistakes when claiming the Child Tax Credit

• Using the wrong SSN for your child. The IRS requires a valid SSN, not an ITIN.
• Forgetting to attach Schedule 8812. If you are claiming the refundable portion, this form is required.
• Not filing a return at all. Even if you have no taxable income, file your return to claim your refund.
• Misunderstanding the income phase-out. If your income exceeds the limit, your credit reduces gradually instead of disappearing all at once.

Can US expats claim the Child Tax Credit?

Many US citizens living abroad are unaware that they may still be eligible for the Child Tax Credit.

The IRS does not restrict the credit based on location, meaning expats can claim the full Child Tax Credit if they meet all standard eligibility criteria, including income thresholds and dependent qualifications.

However, there is a critical limitation for expats who claim the Foreign Earned Income Exclusion (FEIE).

Since the refundable portion of the Child Tax Credit (Additional CTC) is calculated based on taxable income, those who exclude all or most of their income under FEIE often find that they do not qualify for the refundable portion of the credit.

How the Foreign Earned Income Exclusion (FEIE) affects the Child Tax Credit

Many US expats use the Foreign Earned Income Exclusion (FEIE) to reduce or eliminate US taxable income. 

While this is often beneficial, it can also disqualify them from receiving the refundable portion of the Child Tax Credit:

• If an expat excludes all income using FEIE, their taxable income becomes zero, making them ineligible for the refundable credit.
• If an expat partially excludes their income, the remaining taxable income determines whether they qualify for the refundable portion of the credit.

Solution: Using the Foreign Tax Credit (FTC) instead of FEIE

Instead of using FEIE, some expats may benefit more from claiming the Foreign Tax Credit (FTC).

• FTC allows expats to keep taxable income on their US return, making them eligible for the refundable portion of the CTC.
• FTC helps offset US tax liability by applying foreign taxes paid, meaning that expats can still reduce their US tax bill without losing access to refundable credits like the Additional Child Tax Credit.
• The choice between FEIE and FTC should be made carefully, considering income level, tax paid in the foreign country, and eligibility for refundable credits.

Expats who are unsure whether to use FEIE or FTC should consult a tax professional to determine the most advantageous tax strategy.

Filing requirements for expats claiming the Child Tax Credit

To claim the Child Tax Credit, US expats must meet all standard IRS requirements and follow specific filing procedures.

Key filing requirements:

• File Form 1040 – Even if you live abroad, the US requires you to file a tax return annually.
• Attach Schedule 8812 – This form is necessary if claiming the refundable portion of the CTC.
• Provide a valid SSN for each qualifying child – Unlike some other credits, an Individual Taxpayer Identification Number (ITIN) is not accepted.
• Meet either the bona fide residence test or physical presence test – If using FEIE, ensure that you meet the IRS’s residency criteria for living abroad.

What expats should do if they haven’t claimed the Child Tax Credit in previous years

Many expats do not realize that they can retroactively claim the Child Tax Credit for prior years.

If you missed out on claiming CTC, there are options available to recover past credits.

• Amend past tax returns – You can amend prior-year tax returns (up to 3 years back) using Form 1040-X to claim the credit retroactively.
• Use the IRS Streamlined Filing Compliance Procedures – Expats behind on their US tax filings can catch up without penalties if they qualify for the Streamlined Foreign Offshore Procedures. This program allows eligible expats to file the last 3 years of tax returns and 6 years of FBARs (if required) while potentially claiming missed credits.

Final thoughts: How to maximize your Child Tax Credit

The Child Tax Credit 2025 is one of the most significant tax breaks available to families. By understanding how it works, checking your eligibility, and filing correctly, you can reduce your tax bill and possibly increase your refund.

If you need help navigating your taxes, our expert CPAs at TFX, Taxes for Expats, are here to ensure you claim every credit you are entitled to. Reach out today for professional assistance with your tax return.