The Additional Child Tax Credit is the refundable portion of the Child Tax Credit. Families who owe the IRS less than their qualified Child Tax Credit amount can claim this refundable credit. Since the Child Tax Credit is non-refundable, the Additional Child Tax Credit refunds the unused portion to the taxpayer, up to a limit that changes with inflation. Recent tax reforms, notably the Tax Cuts and Jobs Act (TCJA), increased the Child Tax Credit to $2,000 and updated the limit on the refundable portion accordingly.
Key Takeaways
- The Additional Child Tax Credit refunds part of the Child Tax Credit that can’t be applied against tax liabilities.
- Families with a tax liability smaller than their Child Tax Credit amount can claim this refundable credit.
- For 2023, eligible taxpayers can receive up to $1,600. In 2024, this amount increases to $1,700.
- Eligibility for the Additional Child Tax Credit is determined by completing Schedule 8812 alongside Form 1040.
Grasping the Concept of the Additional Child Tax Credit
A tax credit is designed to reduce eligible taxpayers’ tax liabilities dollar for dollar. For example, if Susan’s tax bill is $5,550 and she qualifies for a $2,500 tax credit, her effective tax payment would be reduced to $3,050.
Refundable tax credits mean that if the credit exceeds the tax owed, the excess amount is refunded to the taxpayer. If Susan’s refundable tax credit is $6,050 while her tax bill is $5,550, she would receive a refund of $500.
Taxpayers with children can often benefit significantly from the Child Tax Credit, which helps offset the costs of raising children. The credit provides eligible tax filers a reduction of up to $2,000 per child for tax years up to 2025.
To qualify for the Child Tax Credit, the following criteria must be met:
- The child must be 16 years or younger by the end of the tax year.
- The child must be a U.S. citizen, national, or resident alien.
- The child must have lived with the taxpayer for more than half of the tax year.
- The child must be claimed as a dependent on the federal tax return.
- The child must not have provided more than half of their own financial support.
- The child must have a Social Security number.
Distinguishing Between Child Tax Credit and Additional Child Tax Credit
The Child Tax Credit is non-refundable, which means it can reduce your tax liability to zero, but any leftover credit amount is non-refundable. The Additional Child Tax Credit, on the other hand, is refundable, allowing families to receive a refund for the unused portion of their Child Tax Credit.
As of 2023, $1,600 of the Child Tax Credit per qualifying child is refundable, increasing to $1,700 in 2024, provided specific criteria are met. To claim this refund, Schedule 8812 must be completed.
Example of Additional Child Tax Credit
Before the TCJA reforms, families with incomes over $3,000 could claim the Additional Child Tax Credit. The refundable credit was 15% of earned income exceeding $3,000, capped at $1,000 per child. Post reform, the limit increased to $2,000 per child, and the calculated amount stayed refundable.
For instance, a family with two children and an earned income of $28,000 (income over $3,000 being $25,000) would calculate 15% of $25,000 ($3,750). Since this exceeded the $2,000 cap, the family would receive the full unused portion of their Child Tax Credit. Thus, an $800 Child Tax Credit would yield a $1,200 ACCT refund.
The TCJA increased the credit limit and indexed the refundable portion to inflation limits at 15% of earnings over $2,500. Refundable credits are limited to 15% above $2,500, with the updatable refundable ACCT made certain at $1,600 for 2023 and projected $1,700 in 2024.
Resident Adjustments
Before the TCJA, Puerto Rico residents earning below $3,000 could claim the Additional Child Tax Credit if they had strict dependents and paid relevant Social Security and earned-income credits. However, post-reformation allowed eligibility with at least one qualified dependent.
Key Comparisons: Child Tax Credit vs. Additional Child Tax Credit
The Child Tax Credit reduces certain taxpayers’ liability down to $0 but doesn’t refund the remainder. Contrarily, the Additional Child Tax Credit offers a portion back as a refund, limited to inflation-triggered levels.
Pop Quiz: Who Qualifies For the Additional Child Tax Credit?
- Married couples with incomes over $2,500, under $400,000 (filing jointly).
- Singular filers or heads of household with incomes under $200,000.
In excess, taxpayers may claim a partial credit based on inflating or decreasing incomes.
Answer: Is The Additional Child Tax Credit Refundable?
Yes! As long as conditions meet, the Additional Child Tax Credit is refundable, meaning, even if tax payments equate to zero, a certain income-habit lenience might secure the tailored segment. For 2023: secure ranges Јст$1,600– set hourly $1,700. |
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In Conclusion:
The Additional Child Tax Credit completes the non-refundable Child Tax credits rivalling taxpayers’ liability limits. File Schedule 8812 within prescribed income ranges to not only diminish taxes, align zeros, or possibly envelop allowance rents advancing credited end-users.
Related Terms: Child Tax Credit, non-refundable tax credit, tax refund, Schedule 8812, Tax Cuts and Jobs Act.
References
- Tax Policy Center. “How Did the TCJA Change Taxes of Families With Children?”
- Tax Policy Center. “What is the Difference Between Refundable and Nonrefundable Credits?”
- Internal Revenue Service. “Earned Income Tax Credit & Other Refundable Credits: What You Need to Know about CTC, ACTC and ODC”.
- Internal Revenue Service. “26 CFR 601.602: Tax Forms and Instructions; Rev. Proc. 2022-38”, Page 9.
- Internal Revenue Service. “26 CFR 601.602: Tax Forms and Instructions; Rev. Proc. 2023-34”, Page 8.
- Internal Revenue Service. “About Schedule 8812 (Form 1040), Additional Child Tax Credit”.
- Internal Revenue Service. “Schedule 8812, Child Tax Credit (Archive 2017)”, Page 1.
- Internal Revenue Service. “Instructions for Schedule 8812, Credits for Qualifying Children and Other Dependents”, Page 1.
- Internal Revenue Service. “Schedule 8812 (Form 1040), Credits for Qualifying Children and Other Dependents”, Page 2.
- Internal Revenue Service. “Child Tax Credit”.
- Internal Revenue Service. “2021 Child Tax Credit and Advance Child Tax Credit Payments — Topic C: Calculation of the 2021 Child Tax Credit”, Select Q C1. What is the amount of the Child Tax Credit for 2021? (updated March 8, 2022).
