Additional Child Tax Credit (ACTC): Definition and Who Qualifies

What Is the Extra Baby Tax Credit score?

The extra youngster tax credit score is the refundable portion of the kid tax credit score. It may very well be claimed by households who owed the IRS lower than their certified youngster tax credit score quantity. For the reason that youngster tax credit score non-refundable, the extra youngster tax credit score refunded the unused portion of the kid tax credit score to the taxpayer. This provision was eradicated from 2018 to 2025 by the Tax Cuts and Jobs Act (TCJA). Nonetheless, beneath the TCJA, the kid tax credit score consists of some provisions for refundable credit.

Understanding the Extra Baby Tax Credit score

A tax credit score is a profit given to eligible taxpayers to assist scale back their tax liabilities. If Susan’s tax invoice is $5,550 however she qualifies for a $2,500 tax credit score, she is going to solely should pay $3,050. Some tax credit are refundable, that means that if the tax credit score quantities to greater than what’s owed as tax, the person will obtain a refund. If Susan’s tax credit score is definitely $6,050 and is refundable, she will probably be given a verify for $6,050 – $5,550 = $500.

Relying on what tax group a taxpayer falls in, they could be eligible to say a tax credit score. For instance, taxpayers with youngsters could qualify for the Baby Tax Credit score which helps to offset the prices of elevating youngsters.

For the 2022 via 2025 tax 12 months, the kid tax credit score permits eligible tax filers to scale back their tax legal responsibility by as much as $2,000 per youngster. To be eligible for the kid tax credit score, the kid or dependent should:

• Be 16 years or youthful by the top of the tax 12 months
• Be a U.S. citizen, nationwide, or resident alien
• Have lived with the taxpayer for greater than half of the tax 12 months
• Be claimed as a depending on the federal tax return
• Not have supplied greater than half of their very own monetary help
• Have a Social Safety quantity

Baby Tax Credit score vs. Extra Baby Tax Credit score

Beforehand, the kid tax credit score was non-refundable, which implies the credit score may scale back a taxpayer’s invoice to zero, however any extra from the credit score wouldn’t be refunded. Households who wished to maintain the unused portion of the kid tax credit score may go the route of one other accessible tax credit score referred to as the extra youngster tax credit score.

The Extra Baby Tax Credit score was a refundable tax credit score that households may qualify for in the event that they already certified for the non-refundable youngster tax credit score. The extra youngster tax credit score was splendid for households who owed lower than the kid tax credit score and wished to obtain a refund for the excess credit score.

In 2022, as much as $1,500 of the kid tax credit score could be refundable for every qualifying youngster if sure circumstances are met. This refundable portion elevated to $1,600 in 2023. To say a refund, filers should full Schedule 8812.

Instance of the Extra Baby Tax Credit score

Earlier than the TCJA, the IRS allowed households with an annual revenue of greater than $3,000 to say a refund utilizing the extra youngster tax credit score. The tax credit score depended on how a lot the taxpayer earned and was calculated by taking 15% of the taxpayer’s taxable earned revenue over $3,000 as much as the utmost quantity of the credit score, which was then $1,000 per youngster. The full quantity above $3,000 (topic to annual changes for inflation) was refundable.

For instance, a taxpayer with two dependents qualifies for the kid tax credit score. Their earned revenue is $28,000, which implies revenue over $3,000 is $25,000. Since 15% x $25,000 = $3,750 is larger than the utmost credit score of $2,000 for 2 youngsters, they might have obtained the complete portion of any unused credit score.

So if the taxpayer obtained an $800 youngster tax credit score, they might be refunded a $1,200 Extra youngster tax credit score. Nonetheless, if the taxable earned revenue was $12,000 as a substitute, 15% of this quantity over $3,000 is 15% x $9,000 = $1,350. As a result of the refundable portion of the credit score can not exceed 15% of earned revenue above $3,000, the taxpayer would obtain a most refund of $1,350, not $2,000.

Taxpayers who have been residents of Puerto Rico with revenue beneath $3,000 have been eligible if they’d no less than three qualifying dependents and paid Social Safety tax in extra of the quantity of their earned-income credit score for the 12 months.

The Backside Line

The Extra Baby Tax Credit score is taken into account the refundable portion of the Baby Tax Credit score. By submitting Schedule 8812, a taxpayer might be able to not solely scale back their tax legal responsibility all the way down to $0 utilizing the non-refundable portion of the Baby Tax Credit score, they could obtain a refund by way of the refundable Extra Baby Tax Credit score. Although this credit score quantity was larger in years previous, momentary laws has since handed.