Claimed the Child Tax Credit for 2023? Here's Why You May Not Get It in 2024

The fact that the U.S. tax code makes different credits available to filers is a good thing. That's because claiming tax credits can result in a world of savings.

A tax credit is a dollar-for-dollar reduction of your tax liability. It's different from a tax deduction, which only exempts some of your income from taxes.

To illustrate the difference, a $1,000 tax credit will directly shave $1,000 off of your IRS bill. A $1,000 tax credit will make it so you're not paying taxes on $1,000 of earnings, but your savings will hinge on your tax bracket. If you're in the 24% bracket, you save $240. But if you're in the 22% bracket, you only save $220. And you don't save the full $1,000 either way.

With that in mind, one of the most valuable tax credits available to filers today is the Child Tax Credit. The credit, which is partially refundable, is worth up to $2,000 per qualifying child in your household.

You may have recently finished filing your 2023 taxes and claimed the Child Tax Credit on your return. But just because you were able to do so last year doesn't mean you'll be able to claim the credit on your 2024 taxes.

When your child ages out

The Child Tax Credit applies to children in your household under the age of 17. If you have a child you claimed the credit for last year who's turning 17 this year, unfortunately, you may have to kiss that $2,000 goodbye.

When your income rises

You might also lose the Child Tax Credit if your income rises substantially in 2024 compared to 2023. The credit is yours to claim in full if your income doesn't exceed $200,000 as a single tax filer or $400,000 as a couple filing jointly. Beyond that, you lose $50 from the credit per $1,000 of earnings.

So let's say you're single and earned $200,000 last year, but this year, thanks to a giant promotion and raise, your income increases to $240,000. That extra $40,000, though a good thing in theory, whittles your credit down to $0.

How to compensate for the loss of the Child Tax Credit

Losing a valuable tax break like the Child Tax Credit can constitute a harsh blow. But there may be some steps you can take to make up for it and eke out more tax savings.

One thing you can do is try to put more money into a traditional IRA or 401(k), which will shield additional income from taxes. If you qualify for an HSA, increasing your contributions there could have the same effect.

Also, if you itemize your tax return, increasing your charitable contributions could result in a lower IRS bill. Plus, that way, you get to do something you can feel good about.

Even if you normally use tax software to file your return, you may also want to talk to a tax professional and ask for advice on ways to make up for losing the Child Tax Credit. They might have some creative but legal ideas to improve your tax situation.