Definition of Additional Tax Credit for a Child - Federal Income Tax Guide - 2021
What is a child tax credit?
The additional child tax credit was the recoverable portion of the child tax credit. It can be claimed by families who owe the IRS less than the eligible child tax credit amount. Because the child's tax credit was not refundable, the child additional tax refund refunded the unused portion of the child's tax credit to the taxpayer. This provision was overturned from 2018 to 2025 under the 2017 tax bill. However, the new child tax credit model includes some credits for refundable credits.
Tax cuts in exchange for tax credits
Understand an additional child tax credit
Tax credit is a benefit given to qualified taxpayers to help reduce their tax liabilities. If Susan's tax bill is $ 5,550 but is eligible for a $ 2,500 tax credit, she will only have to pay $ 5,550 - $ 2,500 = $ 3,050 to the government. 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 Suzie's tax credit is actually $ 6,050 refundable, she will be given a check for $ 6,050 - $ 5,550 = $ 500. Depending on the tax group the taxpayer falls into, he or she may be eligible to claim a tax credit filed for that group. For example, taxpayers with children may qualify for a child tax credit that helps offset the costs of raising the children.
Main gaps
The additional child tax credit was the recoverable portion of the child tax credit. The additional child tax credit can be claimed by families that have less of the tax credit for the eligible child. This 2018-2025 provision was overturned by the 2017 tax invoice, but the new form of child tax credit includes provisions for refundable credits.
The 2018 Child Tax Credit allows an eligible tax file to reduce their tax liability by up to $ 2,000 per child. To be eligible for a child tax credit, the child or dependent must:
Be 16 years of age or younger by the end of the tax year; Or be a U.S citizen, citizen, or foreign resident; Have lived with the taxpayer for more than half of the tax year. More than half of the financial support for his / her Social Security number (new item)
Previously, a child tax credit was non-refundable, which meant that credit could reduce the taxpayer bill to zero, and any excess credit would not be refunded. A person who owes $ 800 to the government but is demanding $ 2,000 in tax credit for the two children will ultimately not have to pay anything but the $ 1,200 surplus.
Families who wanted to keep the unused portion of the child tax credit were able to go the path of another available tax credit called the extra child tax credit. The additional child tax credit was a refundable tax credit that families can qualify for if they are already eligible for a non-refundable child tax credit. The Extra Child Tax Credit was ideal for families who owed less than the Child Tax Credit and wanted a refund for the excess credit.
Table 8812 of Form 1040 was used to find out if a person was eligible for an additional tax credit and how much an individual was eligible. The Internal Revenue Service (IRS) allowed families with an annual income of more than $ 3,000 and three or more children eligible to claim a refund using the additional child tax. The tax credit was based on how much the taxpayer earned and calculated by taking 15% of the taxpayer's taxpayer income of more than $ 3,000 up to the maximum credit amount, which was then $ 1,000 per child. Total amount exceeding $ 3,000 (subject to annual adjustments for inflation) was recoverable.
For example, a taxpayer qualifies with two dependents for a child tax credit. His earned income is $ 28,000, so his income over $ 3,000 is $ 25,000. Since 15% x $ 25,000 = $ 3,750 greater than the $ 2,000 maximum credit for two children, he will receive the full portion of any unused credit. So, if he gets $ 800 in Child Tax Credit, he'll be refunded $ 1,200 in additional child tax. However, if his taxable income is $ 12,000 instead, 15% of that over $ 3,000 is 15% x $ 9,000 = $ 1,350. Since the recoverable portion of the balance cannot exceed 15% of his earned income in excess of $ 3,000, he will receive a maximum refund amount of $ 1,350, not $ 2,000.
Taxpayers earning less than $ 3,000 may qualify if they have at least three eligible dependents and have paid Social Security tax in excess of the amount of their earned income credit for the year. This credit was claimed in Schedule 8812 and was also subject to the same phase-out restrictions as the child tax credit.