So you’ve done the impossible – retired with young children (or retired and then had children.)

Congratulations, you are eligible for a generous $2,000 Child Tax Credit (per kid.)

But if you no longer have earned income and/or already have a low/zero tax burden, you could miss out on thousands of dollars.

This is how to avoid that. (This is especially important now that we have doubled our potential for Child Tax Credits.)

The Child Tax Credit

In the Tax Cuts and Jobs Act of 2017 (my review) personal exemptions were eliminated in favor of increasing the Standard Deduction and the Child Tax Credit.

A credit reduces the tax you owe dollar for dollar – The Child Tax Credit (CTC) can eliminate up to $2,000 of tax per qualifying child. (This is not indexed for inflation, so it declines in value over time. Unless new legislation is passed, the CTC will revert to its pre-TCJA value of $1,000/child after 2025.)

Requirements for Child Tax Credit eligibility are basically that you have a kid who lives with you, but IRS Publication 972 (pdf) is more specific:

  • Child is US citizen or resident alien and have not had their 17th birthday
  • Child must have a Social Security Number
  • Child lived with you and you provided more than 50% of their support
  • Child is your son, daughter, adopted child, grandchild, stepchild or eligible foster child, your sibling, step-sibling or their descendant.

If Adjusted Gross Income is greater than $400,000 for Married Filing Jointly (or greater than $200,000 for everyone else) then the maximum CTC is reduced at a 5% marginal rate ($50 reduction for every $1,000 over the AGI threshold.)

Since too much income isn’t a problem for most people, nearly all households with children qualify.

Additional Child Tax Credit

If the CTC completely eliminates your tax burden, up to $1,400 per child is refundable… meaning not only do you owe zero tax but you get free money back. This is called the Additional Child Tax Credit (ACTC) and is calculated on Schedule 8812 (pdf.)

Unlike the core CTC, the ACTC is adjusted for inflation… and in theory can increase up to the maximum value of $2000 at some point in the future. Due to low inflation post-TCJA, the 2020 maximum ACTC remains at $1,400.

Eligibility for the ACTC requires that you have Earned Income in excess of $2,500. Households claiming the Foreign Earned Income Exclusion are also ineligible.

Once you reach the $2,500 earned income threshold, the ACTC increases at a rate of $0.15 per dollar earned. Thus a 1-child household will need to earn $11,833 to get the maximum refund. Multi-child households need to earn more.

For households with more than $4,200 in Additional Child Tax Credit (3+ children) the calculation is a little more complicated – but it is possible to get a refund / ACTC even with earned income of <$2,500 if you pay more in SS taxes than you benefit in EITC (exercise for the reader.)


1. Parker and Peyton have a toddler. In 2019 they earned $50,000 which resulted in total tax of $2,684. The Child Tax Credit of $2,000 reduced this dollar-for-dollar to $684. (For tax calculations, I used our Federal Income Tax Calculator.)

Total possible benefit with 1 child: $2,000
Actual amount received: $2,000

2. Pat and Chris have 2 children ages 9 and 12. They earned $21,166.67 in 2019 and file taxes as Married Filing Jointly.
Since their total income is less than the standard deduction, they will owe zero tax. With no tax, their CTC will be $0.

However, they are eligible for the ACTC and will get 15% of the amount they earned over $2,500 up to $1,400/child. Or in this case, exactly $1,400/child.

Total possible benefit with 2 children: $4,000
Actual amount received: $2,800 ❌
Left on the table: $1,200 :(

3. Jeremy and Winnie have 2 kids, a 5-year-old and an infant. They have multiple streams of income totaling ~$100,000, of which half is from self-employment that is excluded from taxation with the Foreign Earned Income Exclusion. The remainder is from qualified dividends and long-term capital gains which are taxed at 0%. In total, they pay zero tax.

With no income tax at all, they get $0 from the Child Tax Credit. By claiming the FEIE, they are ineligible for the ACTC.

Total possible benefit with 2 children: $4,000
Actual amount received: $0 ❌
Left on the table: $4,000 :(

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Maximizing the Child Tax Credit

For a household with children and at least 1 adult with a good income, getting a child tax credit is fairly straightforward.

But what if you don’t earn enough to get the full credit? Or you dislike earning an income? Or you accidentally earn some money, but you are outside the US and use the Foreign Earned Income Exclusion?

Then we need to do the abnormal and intentionally pay more taxes. Then we can use the CTC to reduce that tax burden back to zero.

Let’s update 2 of the examples above to do just that.

Pat and Chris from Example #2 left $1,200 on the table because their earned income of ~$21k was too low to pay tax and the ACTC is limited to $1,400/child.

To maximize the CTC they need to increase their tax by $1,200.

One option is to do a ~$15,250 Roth conversion, increasing their AGI to $36,400.

This will increase their total tax to $1,200. The CTC will reduce this back to $0, and they will still get a refund from the ACTC of $2,800.

Total possible benefit with 2 children: $4,000
Actual amount received: $4,000
Left on the table: $0

Warning: the Roth conversion will increase their MAGI for ACA Premium Subsidy purposes. Learn more here.

Opportunity: Don’t forget to also maximize the Saver’s Credit

Jeremy and Winnie in example #3 left $4,000 on the table. Even with $100k in income, they pay zero tax so they get no benefit from the CTC. Because they claim the FEIE, they are ineligible for the ACTC.

Instead, they do a combination of things to increase their tax bill by $4,000. Options include:

  • Roth conversion – same as example 2
  • Harvest short-term capital gains – short-term capital gains are taxed the same as earned income, in this case at 22%.
  • Harvest long-term capital gains – long-term capital gains are taxed at beneficial rates from 0% to 20%, or 15% at these income levels.
  • All of the above

Now with $4,000 in tax due, the CTC can reduce this back to zero.

Total possible benefit with 2 children: $4,000
Actual amount received: $4,000
Left on the table: $0


For households with low tax burden and/or low earned income, getting the maximum Child Tax Credit benefit requires intentionally increasing the amount of tax owed. The CTC can then reduce this back to low/zero.

The common early retirement tax minimization tools of Roth conversions and Capital gain harvesting are useful here. (Related: which is better, Roth Conversions or Capital Gain Harvesting?)

Are you getting the full Child Tax Credit?