Additional Child Tax Credit

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 for 2018 to 2025 by the Tax Cuts and Jobs Act,
  • Child tax credits for 2021, however, were made fully refundable as part of the American Rescue Plan.
  • For 2021, advance child tax credits could be claimed via monthly payments in the amount of half of their total child tax credit. The second half can be claimed by those eligible on their 2021 tax returns.
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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 $3,050. 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 2022 through 2025 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 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.

The American Rescue 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 who earn 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).

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 who were residents of Puerto Rico 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.

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

Under President Biden's 2021 American Rescue 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 2021 Child Tax Credit?

To qualify for advanced payments for the 2021 tax year to receive the Economic Impact Payment, had a main home in the U.S. for more than half the year (or file a joint return with a spouse who has a main home in the United States for more than half the year), have a qualifying child who is under age 18 at the end of 2021 and who has a valid Social Security number, and made less than certain income limits.

Article Sources

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  1. Internal Revenue Service. "Child Tax Credit." Accessed Jan. 12, 2022.

  2. U.S. Congress. "H.R. 1 - An Act To Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018." Accessed Jan. 12, 2022.

  3. Internal Revenue Service. "What's New With the Child Tax Credit After Tax Reform?" Accessed Jan. 12, 2022.

  4. The White House. "The Child Tax Credit." Accessed Jan. 12, 2022.

  5. Internal Revenue Service. "Here’s How the Credit for Other Dependents Can Benefit Taxpayers." Accessed Jan. 12, 2022.

  6. Internal Revenue Service. "Publication 5307, Tax Reform Basics for Individuals and Families," Page 7. Accessed Jan. 12, 2022.

  7. Internal Revenue Service. "The Child Tax Credit Benefits Eligible Parents." Accessed Jan. 12, 2022.

  8. Internal Revenue Service. "Publication 972, Child Tax Credit: 2017 Archive," Page 3. Accessed Jan. 12, 2022.

  9. Internal Revenue Service. "Publication 972, Child Tax Credit: Archive 2017," Page 4. Accessed Jan. 12, 2022.

  10. Congressional Research Service. "The Child Tax Credit: How It Works and Who Receives It (Updated January 12, 2021)," Summary Page, Pages 1-2. Accessed Jan. 12, 2022.

  11. Internal Revenue Service. "About Schedule 8812 (Form 1040), Additional Child Tax Credit." Accessed Jan. 12, 2022.

  12. Internal Revenue Service. "Schedule 8812, Child Tax Credit: Archive 2017," Page 1. Accessed Jan. 12, 2022.

  13. Internal Revenue Service. "2017 Instructions for Schedule 8812, Child Tax Credit," Page 3. Accessed Jan. 12, 2022.

  14. Internal Revenue Service. "IRS Updates the 2021 Child Tax Credit and Advance Child Tax Credit Frequently Asked Questions, FS-2022-03," Page 1, 8. Accessed Jan. 12, 2022.

  15. Internal Revenue Service. "IRS Updates the 2021 Child Tax Credit and Advance Child Tax Credit Frequently Asked Questions, FS-2022-03," Pages 5-6. Accessed Jan. 12, 2022.

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