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Additional Child Tax Credit (ACTC): Definition & Meaning

Updated: November 25, 2022

The Internal Revenue Service (IRS) defines many tax laws but also provides relevant information for you to do your taxes accurately. Plus, the IRS also establishes a broad range of tax credits that different individuals are eligible for. 

One of these tax credits is known as the additional child tax credit (ACTC). There are a few specifics to be aware of, however. That’s why we created this guide. Read on to learn more, including how it works, how much it is, how to qualify for it, and more valuable information.

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    KEY TAKEAWAYS

    • The refundable element of the child tax credit was the enhanced child tax credit.
    • Families who owed the IRS less than the amount of the qualified child tax credit were eligible to apply for it.
    • The Tax Cuts and Jobs Act abolished the additional child tax credit from 2018 through 2025. However, child tax credits for 2021 were fully refundable as part of the American Rescue Plan.
    • In order to collect advance child tax credits for 2021, taxpayers would need to make monthly payments. These would need to total half of their total child tax credit. Those who qualify may claim the second half on their 2021 joint returns. Or their individual returns.

    What Is Additional Child Tax Credit?

    The additional child tax credit was a percentage of the child tax credit that is refundable. Families who owed the IRS less than the amount of the qualified child tax credit were eligible to apply for it. The supplementary child tax credit reimbursed the taxpayer for the unused amount of the child tax credit because the child tax credit was non-refundable.

    The Tax Cuts and Jobs Act repealed this clause between 2018 and 2025. (TCJA).

    The refundable tax credit provisions for the child tax credit are included in the TCJA, though.

    Additionally, President Biden’s American Rescue Plan was passed into law on March 11, 2021, making child tax credits completely refundable in that year.

    Turn Tax Pains Into Tax Gains

    How Much Is the Additional Child Tax Credit?

    The child tax credit enables eligible tax filers to lower their tax obligation by up to $2,000 per child for the tax years 2022 through 2025.

    The dependent or child must: in order to qualify for the child tax credit.

    • At the conclusion of the tax year, be 16 years old or younger
    • Being a resident alien, citizen, or national
    • Have been a taxpayer’s roommate for more than half the tax year
    • On the federal tax return, be listed as a dependent
    • Not contributed more than half of their own money to maintain themselves.
    • Possession of a Social Security number

    How Does Additional Child Tax Credit Work?

    A tax credit is a benefit provided to qualified taxpayers to assist in lowering their tax obligations. The tax bracket a taxpayer is in will determine whether they are qualified to receive a tax credit. Taxpayers with children, for instance, may be eligible for the child tax credit, which helps to defray the expense of raising children.

    How to Calculate the Additional Child Tax Credit

    Prior to the TCJA, the IRS permitted families with an annual income of over $3,000 to use the additional child tax credit to request a refund. The tax credit was determined by deducting 15% of the taxpayer’s taxable earned income over $3,000 up to the maximum credit, which was then $1,000 per child. 

    The credit was dependent on the taxpayer’s earnings and was computed. Any total that exceeded $3,000 was refundable. Although this is subject to annual adjustments for inflation.

    How Do I Qualify for the Additional Child Tax Credit?

    Working parents with low to moderate incomes are supposed to benefit from both the Child Tax Credit and the Additional Child Tax Credit. Families cannot claim the ACTC unless they have earned an income of at least $2,500. 

    Salaries and wages, self-employment, and some disability payments are all examples of earned income. Parents who only receive “unearned” income, such as interest, dividends, pensions, annuities, social security, unemployment benefits, alimony, or child support, are ineligible.

    It's Time For Owners To Own Tax Season

    What Are the Benefits of Additional Child Tax Credit?

    There are a number of benefits of the additional child tax credit. Some of these benefits include: 

    • According to the Tax Policy Center, 92 percent of households with children will receive a CTC with an average value of $4,380.
    • Because families can have more than one child, the average credit can be higher than the maximum credit per child.
    • 89 percent of families with children received an average CTC of $2,310 under the previous law.
    • Average credits were reduced for all income levels, but especially for the families with the lowest incomes.

    Additional Child Tax Credit Example

    A taxpayer who has two dependents, for instance, is eligible for the child tax credit. They have a $28,000 earned income, thus everything over $3,000 is worth $25,000 to them. They would have gotten the full share of any unused credit because 15% x $25,000 = $3,750 is larger than the $2,000 credit cap for two children.

    Thus, the taxpayer would receive a refund of $1,200 Additional Child Tax Credit if they had previously received an $800 Child Tax Credit. However, if the taxable earned income had been $12,000 as opposed to $3,000, the excess would be 15% x $9,000, or $1,350. The taxpayer would only be eligible for a maximum refund of $1,350, not $2,000, as the refundable element of the credit is limited to 15% of earned income over $3,000 and cannot exceed that amount.

    Summary

    The American Rescue Plan for 2021 increased the Child Tax Credit (CTC). A person filing who has numerous children may total a limitless amount of credit.

    The credit is entirely refundable. This means that low-income families across the country are entitled to the maximum amount regardless of their income. If the credit is greater than the amount of taxes owed, families may get a tax refund.

    Less Taxin'. More Relaxin'

    FAQS on Additional Tax Credit

    Is There a Difference Between Child Tax Credit and Additional Child Tax Credit?

    Yes, there is a difference. If your Child Tax Benefit is larger than the total amount of income taxes you owe, you may be eligible for the Additional Child Tax Credit, a refundable credit.

    Can You Get Both CTC and ACTC?

    You can only request the ACTC if the CTC is not refunded to you.

    How Much Is the ACTC per Child?

    For each eligible child, the refundable portion of the credit, known as the ACTC, is worth up to $1,400. The maximum CTC per eligible child is $2,000 per child.

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