Image courtesy of user "Geralt" on Pixabay.com.

Image courtesy of user “Geralt” on Pixabay.com.

The “”Additional Child Tax Credit” is the portion of the child tax credit that is fully refundable regardless of a taxpayer’s taxable income. On this blog, I usually refer to this credit as the “refundable child tax credit” but that’s just my informal term for it. Additional Child Tax Credit is the proper term.

I will the abbreviation “CTC” for “Child Tax Credit” for the remainder of this post.

Background

The CTC is a $1,000 tax credit per child under age 17. There are nuances to this, and phaseouts apply above certain income levels. I won’t get into those things here.

The credit starts as a non-refundable credit but some or all of it can become refundable.

Reminder:

A non-refundable credit is a credit that brings your tax liability down to $0 but the credit itself cannot generate a refund.

A refundable credit is a credit that is paid in full regardless of your tax liability.

How This Works with the CTC

Let’s say someone has 1 child who qualifies for the tax credit. The taxpayer’s tax liability is $2,500.

This taxpayer would have their tax liability reduced by $1,000 by the CTC, bringing their tax liability down to $1,500. No further calculations are needed and the entire credit is considered non-refundable.

Now let’s change the scenario and say this taxpayer’s tax liability is $900 instead.

In this case, $900 of the $1,000 CTC is considered non-refundable and the taxpayer’s tax liability becomes $0.

The remaining $100 of the CTC may become refundable as an “Additional CTC”, depending on the taxpayer’s earned income. The maximum Additional CTC is 15% of your earned income over $3,000.

In our example above with the $900 “regular” CTC: let’s say the taxpayer’s earned income is $40,000. This taxpayer’s maximum Additional CTC is: $40,000 x .15 = $6,000 $37,000  x  .15 = $5,550*. But since the remaining portion of the CTC in our example is $100, they’re limited to claiming the $100 is a refundable credit.

*-Thanks to Jackie Strat who, in the comments section, pointed out that the Additional CTC is based on earned income above $3,000, so in our example, we’d use $37,000 rather than $40,000.

“This blog post, along with comments that may follow, should not be considered tax advice. Before you make final tax or financial decisions, please secure a professional tax advisor to give you advice about your unique situation. To secure Jason as your accountant, please click on the ‘Services’ link at the top of the page.”