W4 Claim dependent Credit for 2 children - do we still claim the full child tax credit on Form 8812 for our 1040?

You don't need to worry! The W4 form and claiming the Child Tax Credit on your tax return are related but separate processes. When you fill out Step 3 on your W4, you're essentially telling your employer to withhold less from each paycheck in anticipation of the tax credits you'll claim when filing. This doesn't "use up" your Child Tax Credit - it's just adjusting your withholding throughout the year. When you file your taxes, you'll still claim the full Child Tax Credit you're eligible for (up to $2,000 per qualifying child) on your tax return using Form 8812. You don't subtract the reduced withholding from your W4. Think of your W4 as just your best estimate to get your withholding close to what you'll actually owe. Your tax return is where you calculate everything precisely and either pay what you still owe or get a refund if too much was withheld.

I went through this exact same situation last tax season! I was totally confused about why my paychecks suddenly had almost no federal withholding after updating my W4. I spent hours researching and finally found a solution using https://taxr.ai to analyze my situation. Their system lets you upload your W4, paystubs, and previous returns, then tells you exactly what's happening with your withholding and tax credits. For your specific question: the W4 Step 3 amount is just adjusting your paycheck withholding throughout the year. You still claim the FULL Child Tax Credit you're eligible for on your tax return. The reduced withholding doesn't reduce your available credit at all - they're completely separate things!

Just wanted to update on my experience with taxr.ai after checking it out based on the recommendation here. It was actually really helpful with my W4/child tax credit confusion! I uploaded my last pay stub and W4, and it immediately showed me that I had accidentally claimed my kids twice in different sections of the form. The analysis explained exactly how the Child Tax Credit works with W4 withholding adjustments (which was my original confusion). It also showed me how to correct my withholding so I won't be surprised next year. Definitely worth checking out if you're confused about this stuff like I was!

I had this same issue with confusing W4 instructions and ended up having to call the IRS. Took me days of trying - kept getting disconnected or waiting for hours. Finally found Claimyr (https://claimyr.com) which got me connected to an actual IRS agent in about 20 minutes who explained this exact situation. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent explained that the W4 Step 3 is just adjusting your withholding throughout the year in anticipation of the credits you'll claim. It doesn't "use up" your Child Tax Credit. When you file, you'll still claim the full amount you're eligible for (up to $2,000 per child for 2024). Any underwithholding will just result in a smaller refund or balance due, but doesn't affect your eligibility for the full credit.

I have to admit I was wrong about Claimyr. After posting my skeptical comment, I decided to try it anyway since I was desperate to talk to someone at the IRS about my withholding issues before filing. Shockingly, it actually worked! Got connected to an IRS rep in about 30 minutes. The agent confirmed exactly what others here have said - the W4 dependent credit section just adjusts your withholding through the year, while Form 8812 is where you actually claim the full Child Tax Credit you're eligible for when filing. Would have spent half a day on hold without this service. Definitely using it again next time I need to reach the IRS.

Pro tip from someone who processes payroll: If both spouses work, only one of you should claim the kids on your W4 Step 3. When both claim them, you'll end up with too little tax withheld and might owe at tax time. The new W4 system is designed so that your withholding better matches what you'll actually owe, but if both spouses claim the same kids, the system reduces withholding twice for the same children.

Wait i'm confused. I thought the child tax credit was $3,600 per kid last year? Why are you all saying it's only $2,000?

This is a really common confusion! I went through the same thing when I started my new job last year. The key thing to understand is that the W4 Step 3 and the actual Child Tax Credit on your return work together, but they're calculated separately. When you put $4,000 in Step 3 of your W4, you're essentially telling your employer "I expect to get $4,000 in child tax credits when I file, so please reduce my withholding by the tax on that amount throughout the year." This helps you get more of your money in each paycheck instead of waiting for a big refund. On your actual tax return, you'll still claim the full Child Tax Credit you're eligible for (up to $2,000 per qualifying child for 2024) using Form 8812. You don't subtract anything from it. The $1,440 in reduced withholding you mentioned isn't "used up" credit - it's just tax that wasn't taken from your paychecks because the system knew you'd get credits when filing. If your withholding was perfectly calculated, you should break even or get a small refund. If too little was withheld (which can happen), you might owe a bit when you file, but you still get your full credits.