The Additional Child Tax Credit: What Is It?

The supplementary child tax credit  (ACTC)represents the refundable element of the child tax credit. Families who owed the IRS less than the qualifying child tax credit amount were eligible to apply for it. Due to the non-refundable nature of the child tax credit, the supplementary child tax credit reimbursed the taxpayer for any excess amounts.

The Internal Revenue Service’s “Child Tax Credit.”
The Tax Cuts and Jobs Act (TCJA) repealed this clause from 2018 to 2025. Nevertheless, the refundable credit provisions for the child tax credit are included in the TCJA.

The Additional Child Tax Credit: An Overview

A tax credit is a benefit provided to qualified taxpayers to assist in lowering their tax obligations.
If Susan owes $5,550 in taxes but is entitled to a $2,500 tax credit, she will only be responsible for $3,050. Some tax credits are refundable, meaning the taxpayer will get a refund if the tax credit exceeds the tax due. Susan will get a cheque for $6,050 – $5,550 = $500 if her tax credit is indeed $6,050 and refundable.

A person’s tax bracket will determine whether they are qualified to receive a tax credit. Taxpayers with children, for instance, may be eligible for the Child Tax Credit, which helps to defray the expense of raising children.
The child tax credit enables qualified tax filers to lower their tax obligation by up to $2,000 per child for the tax years 2022 through 2025.

The dependant or kid must qualify for the child tax credit.

• After the tax year, be 16 years old or younger.
• being a resident alien, citizen, or national
• Have been a taxpayer’s roommate for more than half the tax year
• In the federal tax return, be listed as a dependant
• not contributed more than half of their own money to maintain themselves.

Additional Child Tax Credit vs. Child Tax Credit

The child tax credit used to be non-refundable, which meant that even while it may make a taxpayer’s tax obligation zero, any unused portion would not be returned.

Families might utilize the extra child tax credit, another possible tax benefit, to preserve the unused part of the child tax credit.

Families might be eligible for the refundable Additional Child Tax Credit if they were previously eligible for the non-refundable Child Tax Credit. Families that owe less than the child tax credit and want a refund for the excess credit were the perfect candidates for the supplementary child tax credit.

For each eligible kid in 2022, up to $1,500 of the child tax credit may be refundable, provided certain requirements are satisfied.
In 2023, this refundable share will rise to $1,600.
Filers must complete Schedule 8812 to get a refund.

Using the Additional Child Tax Credit as an example

Before TCJA, the IRS permitted families with an annual income of over $3,000 to request a refund using a child tax credit, which was determined by deducting 15% of the taxpayer’s taxable earned income above $3,000 up to the maximum credit, which was then $1,000 per child. The credit was dependent on the taxpayer’s earnings and was computed. The sum above $3,000 was refundable (subject to yearly adjustments for inflation).

For instance, A taxpayer with two dependents is eligible for the child tax credit. They have a $28,000 earned income. Thus, everything above $3,000 is worth $25,000 to them. They would have gotten the entire share of unused credit since 15% x $25,000 = $3,750 is larger than the $2,000 credit cap for two children.

Thus, the taxpayer would get a $1,200 Additional Child Tax Credit refund if they had previously earned a $800 Child Tax Credit. However, if the taxable earned income had been $12,000 instead of $3,000, the excess would be 15% x $9,000, or $1,350. The taxpayer would only be eligible for a maximum refund of $1,350, not $2,000 since the refundable element of the credit is limited to 15% of earned income above $3,000 and cannot exceed that amount.

If a taxpayer had at least three qualifying dependents and paid Social Security tax over the amount of their earned-income credit for the year and was a resident of Puerto Rico, they were eligible.

What Sets the Child Tax Credit Apart from the Additional Child Tax Credit?

The Child Tax benefit is a non-refundable tax benefit that certain taxpayers may use to make their tax obligation zero. However, you may use a part of this credit as a refundable credit. Similar requirements apply to all tax credits; the only distinction is when the credit is applied to your return.

To whom does the Additional Child Tax Credit apply?

The Child Tax Credit (and, indirectly, a part of the Additional Child Tax Credit) is available to married couples with incomes under $150,000. Individual taxpayers and heads of households with annual incomes under $112,500 are also eligible. Additionally eligible are taxpayers with any other file status and an annual income of less than $75,000.

The Additional Child Tax Credit may be refunded.

The Child Tax Credit’s Additional Child Tax Credit component is refundable. This implies that you may get some of the Additional Child Tax Credit as a tax refund even if your tax burden is zero.

How long will there be a higher child tax credit?

The enhanced Child Tax Credit has subsequently been discontinued. During the epidemic, Congress passed stimulus legislation to raise the Child Tax Credit’s value temporarily. These clauses lost their effect at the end of 2021.

The refundable element of the Child Tax Credit is known as the Additional Child Tax Credit. A taxpayer who files Schedule 8812 may be eligible to obtain a refund through the refundable Additional Child Tax Credit and use the non-refundable component of the Child Tax Credit to lower their tax bill to zero. Although there used to be a greater credit amount, interim legislation has since been established.

Conclusion

• The refundable element of the Child Tax Credit is known as the Additional Child Tax Credit.
• Families who owed the IRS less than the qualifying child tax credit amount were eligible to apply for it.
• As a part of the American Rescue Plan, the Child Tax Credit was expanded to be completely refundable until 2021.
• The refundable part of the child tax credit is $1,500 for 2022 and $1,600 for 2023, respectively.
• You may complete Schedule 8812 to see whether you qualify for the Additional Child Tax Credit.