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.
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Always love your examples – simple and clear. However, this post would be more accurate to say this taxpayer’s ACTC would be $37,000 x 15% = $5,550…and the same reason for the limitation. The example skips over the previous requirement that the refundable credit is based on earned income in excess of $3,000. This was omitted from the example.
Hi Jackie, and sorry for the slow response. You are correct, the example was wrong, or at the very least “not totally accurate.” I have fixed it. Thanks!