If you can't claim the full Child Tax Credit because you owe less tax than the available credit, you may be able to claim the refundable Additional Child Tax Credit.
TABLE OF CONTENTS
Raising a child is expensive. According to a 2015 report by the U.S. Department of Agriculture, it costs roughly $233,000 to cover food, housing, transportation, health care, clothing, child care, education, and everything else a child needs to thrive from birth through age 17. Fortunately, the Additional Child Tax Credit (ACTC) gives parents a chance not only to lower their tax bill to help offset these costs, but also to potentially put more money back in their pockets.
Understanding the Additional Child Tax Credit begins with the standard Child Tax Credit (CTC).
The Child Tax Credit is worth up to $2,000 for each child who meets the following requirements:
Like other tax credits, the Child Tax Credit is a dollar-for-dollar reduction in your tax.
If your available Child Tax Credit is greater than your tax liability, the Child Tax Credit can only reduce your tax bill to zero — you don’t get any unused portion of the credit back as a refund.
However, you may be able to claim the Additional Child Tax Credit, which allows you to receive up to $1,600 of the $2,000 Child Tax Credit per child as a refund for 2023 and 2024. This means you get a check for the remaining Child Tax Credit (up to $1,600 per child) after your tax bill is reduced to zero.
To determine whether you’re eligible to claim the Additional Child Tax Credit, you can fill out the Child Tax Credit Worksheet included in the Form 1040 instructions. If you qualify, the worksheet will direct you to fill out Schedule 8812 to claim the Additional Child Tax Credit.
If you use TurboTax to prepare your tax return, you don’t need to fill out any worksheets or worry about which forms to use. TurboTax will ask you a few simple questions about your dependents and income, calculate your credit, and fill in all of the right forms for you.
The expanded and newly-advanceable Child Tax Credit was authorized by the American Rescue Plan Act, enacted in March of 2021. Most families do not need to do anything to get their advance payment. Normally, the IRS will calculate the payment amount based on your 2020 tax return. Eligible families will receive advance payments, either by direct deposit or check.
These payments are an advance of your 2021 Child Tax Credit. The amount that you receive will be reconciled to the amount that you are eligible for when you prepare your 2021 tax return in 2022. Most families will receive about one-half of their tax credit through the advance payments. If you receive too little, you will be due an additional amount on your tax return. In the unlikely event that you receive too much, you might have to pay the excess back, depending on your income level.
To reduce fraudulent claims, the Protecting Americans from Tax Hikes (PATH) Act of 2015 gives the IRS more time to review tax returns. The IRS typically doesn't issue refunds before February 15 for those claiming the Additional Child Tax Credit.
The American Rescue Plan raised the maximum Child Tax Credit in 2021 to $3,600 for qualifying children under the age of 6 and to $3,000 per child for qualifying children ages 6 through 17. Before 2021, the credit was worth up to $2,000 per eligible child, and 17 year-olds were not eligible for the credit.
The Child Tax Credit changes for 2021 have lower income limits than the original Child Tax Credit. Families that do not qualify for the credit using these income limits are still eligible for the $2,000 per child credit using the original Child Tax Credit income and phase-out amounts.
In addition, the entire credit is fully refundable for 2021. This means that eligible families can get it, even if they owe no federal income tax.
Before this year, the refundable portion was limited to $1,400 per child and there were other requirements regarding earned income to obtain the refundable portion. There is not an earned income requirement for 2021.
For updates and more information, please visit our 2021 Child Tax Credit blog post.
The Child Tax Credit and the Additional Child Tax Credit are meant to help working parents with low to moderate incomes. For that reason, families must have a minimum of $2,500 of earned income to claim the ACTC. Earned income can come from salaries and wages, self-employment, and some disability payments. Parents whose income comes solely from "unearned" income — such as interest and dividends, pensions and annuities, social security, unemployment, alimony or child support — do not qualify.
Both the Child Tax Credit and the Additional Child Tax Credit phase out for high-income taxpayers. Married couples with modified adjusted gross income (MAGI) greater than $400,000 and other filing statuses with modified adjusted gross income greater than $200,000 will have their credit reduced by $50 for each $1,000 or part of $1,000 that their modified adjusted gross income exceeds those amounts.
To claim the Additional Child Tax Credit, your child must have a Social Security number. If they don’t have a Social Security number, you can’t use the child to claim the Additional Child Tax Credit.
Refundable tax credits such as the Additional Child Tax Credit are particularly attractive to fraudsters who file doctored tax returns to claim bigger refunds. The Protecting Americans from Tax Hikes (PATH) Act of 2015 gave the IRS more time to review tax returns and prevent fraudulent returns from being processed.
According to the PATH Act, the IRS cannot issue refunds before February 15 for any filer claiming the Earned Income Tax Credit or the Additional Child Tax Credit. The rule applies to your entire refund, so you won't get separate checks for the portions of your refund that are or aren't associated with the Additional Child Tax Credit. In other words, your total refund will be delayed.
This means that even if you file your tax return in early January, the IRS will hold your refund until at least February 15.
Prior to the Tax Cuts and Jobs Act of 2017, the Child Tax Credit and the Additional Child Tax Credit looked a bit different. The Child Tax Credit provided a credit worth up to $1,000 per child. No portion of the credit was refundable, so if it reduced your tax liability to zero, the excess credit had no effect on your refund.
The Additional Child Tax Credit was an entirely separate tax credit, but it applied only to families with earned income above $3,000. Families received a refundable credit equal to 15% of their earned income over that threshold, up to $1,000 per child.
Tax reform simplified these credits a bit by combining them into one $2,000 credit. It also allowed more taxpayers to take advantage of them by lowering the earned income threshold and raising the phase-out levels.
To claim the Additional Child Tax Credit, you need to complete Schedule 8812 and attach it to your Form 1040 or Form 1040-SR. But don't worry about memorizing all of the rules and limitations for claiming this credit.
With TurboTax Live Full Service, a local expert matched to your unique situation will do your taxes for you start to finish. Or, get unlimited help and advice from tax experts while you do your taxes with TurboTax Live Assisted.
And if you want to file your own taxes, you can still feel confident you'll do them right with TurboTax as we guide you step by step. No matter which way you file, we guarantee 100% accuracy and your maximum refund.
