What Is the Additional Child Tax Credit?

The additional child tax credit was the refundable portion of the child tax credit. It could be claimed by families who owed the IRS less than their qualified child tax credit amount. Since the child tax credit was non-refundable, the additional child tax credit refunded the unused portion of the child tax credit to the taxpayer. This provision was eliminated from 2018 to 2025 by the Tax Cuts and Jobs Act (TCJA).

However, under the TCJA, the child tax credit includes some provisions for refundable credits. In addition, on March 11, 2021, President Biden’s American Rescue Plan was voted into law and made child tax credits fully refundable in 2021.

Key Takeaways

  • The additional child tax credit was the refundable portion of the child tax credit.
  • It could be claimed by families who owed the IRS less than their qualified child tax credit amount.
  • The additional child tax credit was eliminated from 2018 to 2025 by the Tax Cuts and Jobs Act, but the current form of the child tax credit includes provisions for refundable credits.
  • President Biden’s American Rescue Plan made credits fully refundable in 2021.
  • The American Rescue Plan includes advance child tax credit that pays half of the total child tax credit in advance via monthly payments. The second half can be claimed by those eligible on their 2021 tax returns in April 2022.
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Tax Deductions Vs. Tax Credits

Understanding the Additional Child Tax Credit

A tax credit is a benefit given to eligible taxpayers to help reduce their tax liabilities. If Susan's tax bill is $5,550 but she qualifies for a $2,500 tax credit, she will only have to pay $5,550. Some tax credits are refundable, meaning that if the tax credit amounts to more than what is owed as tax, the individual will receive a refund. If Susan's tax credit is actually $6,050 and is refundable, she will be given a check for $6,050 – $5,550 = $500.

Depending on what tax group a taxpayer falls in, they may be eligible to claim a tax credit. For example, taxpayers with children may qualify for the child tax credit which helps to offset the costs of raising kids.

For the 2020 tax year, the child tax credit allows eligible tax filers to reduce their tax liability by up to $2,000 per child. To be eligible for the child tax credit, the child or dependent must:

  • Be 16 years or younger by the end of the tax year
  • Be a U.S. citizen, national, or resident alien
  • Have lived with the taxpayer for more than half of the tax year
  • Be claimed as a dependent on the federal tax return
  • Not have provided more than half of their own financial support
  • Have a Social Security number

Child Tax Credit vs. Additional Child Tax Credit

Previously, the child tax credit was non-refundable, which means that the credit could reduce a taxpayer’s bill to zero, but any excess from the credit would not be refunded. Families who wanted to keep the unused portion of the child tax credit could go the route of another available tax credit called the additional child tax credit.

This credit was a refundable tax credit that families could qualify for if they already qualified for the non-refundable child tax credit. The additional child tax credit was ideal for families who owed less than the child tax credit and wanted to receive a refund for the surplus credit.

While the additional child tax credit was eliminated in 2018 under the Tax Cuts and Jobs Act (TCJA), up to $1,400 of the $2,000 child tax credit can be refundable for each qualifying child if certain conditions are met. For example, a taxpayer needs to earn more than $2,500 for the tax year to qualify for any refund. To claim a refund, filers must complete Schedule 8812.

However, President Biden’s stimulus plan created major changes to the Child Tax Credit for 2021. The maximum credit rose to $3,000 (children up to 17) or $3,600 (children younger than six). Qualifying families started receiving monthly checks (half of the full credit) in July 2021. The credit also became fully refundable in 2021, and families may claim the second half of the credit on their 2021 tax return. This child-related tax benefit begins to phase out for individual filers, with children earning more than $75,000 and joint filers earning more than $150,000.

The additional child tax credit in its previous form was eliminated from 2018 to 2025 by the Tax Cuts and Jobs Act (TCJA) signed into law by the former Trump administration. The new version of the child tax credit offers a larger maximum credit than its predecessor.

Example of the Additional Child Tax Credit

Before the TCJA, the IRS allowed families with an annual income of more than $3,000 to claim a refund using the additional child tax credit. The tax credit depended on how much the taxpayer earned and was calculated by taking 15% of the taxpayer's taxable earned income over $3,000 up to the maximum amount of the credit, which was then $1,000 per child. The total amount above $3,000 (subject to annual adjustments for inflation) was refundable.

For example, a taxpayer with two dependents qualifies for the child tax credit. Their earned income is $28,000, which means income over $3,000 is $25,000. Since 15% x $25,000 = $3,750 is greater than the maximum credit of $2,000 for two kids, they would have received the full portion of any unused credit.

So if the taxpayer received an $800 child tax credit, they would be refunded a $1,200 Additional child tax credit. However, if the taxable earned income was $12,000 instead, 15% of this amount over $3,000 is 15% x $9,000 = $1,350. Because the refundable portion of the credit cannot exceed 15% of earned income above $3,000, the taxpayer would receive a maximum refund of $1,350, not $2,000.

Taxpayers with income below $3,000 were eligible if they had at least three qualifying dependents and paid Social Security Tax in excess of the amount of their earned-income credit for the year.

Additional Child Tax Credit FAQs

What Is the Difference Between Child Tax Credit and Additional Child Tax Credit?

Under President Biden's 2021 stimulus plan, the child tax credit offers a maximum credit of $3,600 (younger than six years of age) and $3,000 (over age six and up to age 17) to those families who meet eligibility requirements. The additional child tax credit (up to $2,000 per child) was eliminated in 2018 under the Tax Cuts and Jobs Act (TCJA).

Is the New Child Tax Credit for 2020 or 2021?

President Biden's new child tax credit is based on 2020 tax returns and will be used when you file 2021 taxes in April 2022. The changes to the child tax credit apply (as of July 2021) for the tax year 2021 only, unless they are extended.

Who Qualifies for the Additional Child Tax Credit?

The additional child tax credit was eliminated in 2018, so no one at present qualifies for the additional child tax credit. However, the full new child tax credit is offered to parents (who file jointly) who make up to $150,000 a year.

Are There Additional Requirements for the New Child Tax Credit?

The expanded child tax credit was authorized by the American Rescue Plan Act of March 2021 under President Biden's administration. The IRS will pay 50% of the total credit amount in advanced sums to qualifying families via check or direct deposit. To qualify for these advanced payments, there are additional requirements for the new child tax credit. According to the IRS:

To qualify for advance Child Tax Credit payments, you—and your spouse, if you filed a joint returnmust have:
  • Filed a 2019 or 2020 tax return and claimed the Child Tax Credit on the return
  • Given us your information in 2020 to receive the Economic Impact Payment using the Non-Filers: Enter Payment Info Here tool
  • A main home in the United States for more than half the year (the 50 states and the District of Columbia) or file a joint return with a spouse who has a main home in the United States for more than half the year
  • A qualifying child who is under age 18 at the end of 2021 and who has a valid Social Security number
  • Made less than certain income limits