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Additional Child Tax Credit | Eligibility, Income Limit, Calculator, Form & How to Claim ?

Additional Child Tax Credit (ACTC)

The cost of raising a child is high. For a child to have everything they need to flourish from birth until age 17, including food, housing, transportation, health care, clothing, child care, and education, it costs approximately $233,000. Fortunately, the Additional Child Tax Credit (ACTC) gives parents an opportunity to possibly put more money back in their pockets while simultaneously reducing their tax liability to help offset these expenses.


What is the Additional Child Tax Credit ?


The refundable element of the child tax credit was the additional 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 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 The Tax Cuts and Jobs Act repealed this clause between 2018 and 2025.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 credit provisions for the child tax credit are included in the TCJA, though. 3 Additionally, President Biden's American Rescue Plan was passed into law on March 11, 2021, making child tax credits completely refundable in that year.

If a person's Child Tax Credit exceeds the whole amount of income taxes payable, they may be eligible for the Additional Child Tax Credit (ACTC), a refundable tax credit. The Child Tax Benefit, which offers a $1,000 per child tax credit for up to three children, is whence the ACTC gets its name. A part of the standard Child Tax Credit that a person was unable to obtain was made refundable thanks to the ACTC. You might be able to claim the refundable Additional Child Tax Credit if you are unable to claim the full Child Tax Credit because your tax liability is lower than the credit amount.

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. For instance, if your taxes total $1,000 but you qualify for a $2,000 Child Tax Credit, you can add the extra $1,000 credit to your return.

How Does the Additional Child Tax Credit Works ?


The first tax credit for kids was the Child Tax Credit, but it wasn't refundable. In the event that the credit amount exceeded the amount of taxes that the family owed to the government, they might forfeit their tax surplus. For instance, if a household claimed $1,000 in tax credits but only owed $200, they would in fact forfeit the $800 tax surplus (the government would not cover the $800 difference).

Additionally, a person must have an annual salary of at least $3,000. If a family wants to refund a portion of the Child Tax Credit that they were unable to collect, the ACTC is transformed into a refundable sum. With the ACTC, you can claim 15% of a person's income over $3,000 up to the credit's maximum ($1,000 for each kid).

Here is how the Additional Child Tax Credit functions as a whole :

Consider a scenario in which you have three children and satisfy all requirements to be eligible for the Child Tax Credit, including having an annual income of $75,000. The actions you would take to obtain the ACTC are as follows :
  • You would start by taking $3,000 out of $75,000, which gives you $72,000, the amount of earned revenue over $3,000, as your starting point.
  • To calculate the ACTC, multiply 15% by the earned income ($72,000), which comes out to $10,800.
  • You qualify for the ACTC since $10,800 is greater than the $3,000 you receive for the three children.
  • You will qualify for the Additional Child Tax Credit and possibly get a tax refund from the government if your tax liability is less than $3,000 as well.

Key Facts of Additional Child Tax Credit


  • The refundable element of the child tax credit was the ACTC.
  • 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 totaling half of their total child tax credit. Those who qualify may claim the second half on their 2021 tax returns.

Who Qualifies for the Additional Child Tax Credit ?


Because the additional child tax credit was abolished in 2018, no one is currently eligible for it. However, parents (who file jointly) earning up to $150,000 per year are eligible for the full new 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 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 dividends, interest, pensions, unemployment benefits, alimony, or child support, are not eligible.

On December 27, 2020, the Consolidated Appropriations Act (CAA) was ratified as a stimulus measure to aid those affected by the pandemic. The CAA permits taxpayers to compute the ACTC and the Earned Income Tax Credit for tax year 2020 using their 2019 earned income if it was higher than their 2020 earned income (EITC). For high-income taxpayers, both the Child Tax Credit and the Additional Child Tax Credit drop away. If a married couple's modified adjusted gross income (MAGI) is larger than $400,000 or if another filing status has a MAGI greater than $200,000, the credit will be reduced by $50 for each $1,000 or fraction of $1,000 that exceeds those thresholds.

Your child needs a Social Security number in order to be eligible for the Additional Child Tax Credit. You are unable to use the child to claim the Additional Child Tax Credit if they do not have a Social Security number.

To be eligible for the additional child tax credit, the dependent or child must :
  • 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.

What are Advance Child Tax Credit Payments ?


A child tax credit advance payment is a lump sum payment from the IRS that represents 50% of the estimated child tax credit that you are eligible to receive on your 2021 tax return. These monthly payments started in July and lasted through December 2021, based on the information in your return, if the IRS received your 2020 tax return or 2019 tax return before the end of June 2021.

The Credit for Other Dependents, which is not refundable, was not used to determine the amount of the Advance Child Tax Credit payment. See IRS Schedule 8812 (Form 1040), Credits for Qualifying Children and Other Dependents, for further details regarding the Credit for Other Dependents.

Who Was Eligible for Advance Child Tax Credit Payments ? 

 
If your child meets the requirements, you are eligible for ACTC payments. You or your spouse must also have spent more than half the year living in one of the District of Columbia or one of the 50 states if you are married and submitting a joint return. Anyplace where you typically reside can serve as your main residence. Your primary residence doesn't have to be in the same physical area for the entire tax year; it could be a house, an apartment, a mobile home, a shelter, a place to stay temporarily, or another place. To get these benefits, you don't need a permanent address. You are typically recognized as residing in your main residence if you are temporarily absent from it due to a sickness, an obligation to further your education, a job, a trip, or military service.

Advance Child Tax Credit payments were distributed starting in July and continuing every month through December 2021, often based on the data from your 2019 or 2020 federal income tax return. You can claim the full credit amount when you file your 2021 tax return during the 2022 tax filing season if you are eligible for the Child Tax Credit but did not receive advance payments.

See Topic C: Calculation of the 2021 Child Tax Credit for details on how your child tax credit can be lowered dependent on your income.

How Much is the Additional Child Tax Credit ?


For each child, the maximum Additional Child Tax Credit is $1,400. The difference of $600 between the $2,000 child Tax Credit and the $1,400 Additional Child Tax Credit for each child is forfeited if you don't use any of your Child Tax Credit.

What is the Income Limits for Additional Child Tax Credit ?


To qualify, you must earn at least $2,500 annually. Your credit line can be capped at 15% of your earned income over $2,500 if your income is modest. Retirement or IRA distributions and unemployment benefits are not regarded as earned income.

How to Claim Additional Child Tax Credit ?


Form 8812, which must be filled out completely and attached to your Form 1040 or Form 1040-SR in order to claim the Additional Child Tax Credit.

But if you qualify for the Additional Kid Tax Credit, you can get a refund of up to $1,400 of the $2,000 Child Tax Credit per child. This indicates that once your tax liability is nil, you receive a check for the remaining Child Tax Credit (up to $1,400 per child).

You can complete the Child Tax Credit Worksheet found in the Form 1040 instructions to see if you qualify to claim the ACTC. The worksheet will instruct you to complete Schedule 8812 in order to claim the Additional Child Tax Credit if you are eligible.

Changes to Child Tax Credit


The American Rescue Plan increased the maximum Child Tax Credit in 2021 from $1,000 for eligible children under the age of six to $3,600 for eligible children between the ages of six and seventeen. Prior to 2021, the credit had a maximum value of $2,000 per qualified kid and was not available to anyone above the age of 17. Lower income thresholds apply to the modified Child Tax Credit for 2021 than to the original Child Tax Credit. Families can still receive the $2,000 per kid credit under the original Child Tax Credit income and phase-out levels even if they fall beyond these income thresholds. 

The entire credit is also totally refundable for 2021. It is therefore available to qualified families, regardless of whether they owe any federal income taxes. Prior to this year, the refundable component was restricted to $1,400 per kid and was subject to additional limitations relating to earned income. For 2021, there is no requirement for earned income.

Visit our Child Tax Credit blog for updates and more details.


FAQ's


What if I do not want to receive Additional Child Tax Credit Payment ?
The IRS provided an option to unenroll from advance Child Tax Credit payments through the Child Tax Credit Update Portal if you preferred to claim the full credit when you filed your 2021 tax return rather than receiving monthly advance payments for the Child Tax Credit or if you knew you were ineligible for the Child Tax Credit for your 2021 tax year (CTC UP).

What is the Difference Between Additional Child Tax Credit and Child Tax Credit ?
The child tax credit under President Biden's 2021 American Rescue Plan provides families that fulfill eligibility standards with a maximum credit of $3,600 (for children under the age of six) and $3,000 (for children beyond six and up to the age of 17). According to the Tax Cuts and Jobs Act, the additional child tax credit (up to $2,000 per child) was repealed in 2018. (TCJA).

Do the Child Tax Credit Require Any Additional Steps ?
For the 2022 tax year, you must meet certain income requirements, have a qualifying child who will be under the age of 18 at the end of 2022, have a main residence in the United States for more than half the year (or file a joint return with a spouse who has a main residence in the country for more than half the year), and have a main residence in the country.

Are advance Child Tax Credit (ACTC) Payments Taxable ?
No, Payments made under the advance child tax credit are not considered to be income and won't be included on your tax return. The payments you make in advance for your child tax credit are for the tax year 2021.
 
Does the child tax credit is same to as ACTC ?
If a person's Child Tax Credit exceeds the whole amount of income taxes payable, they may be eligible for the Additional Child Tax Credit (ACTC), a refundable tax credit. The Child Tax Benefit, which offers a $1,000 per child tax credit for up to three children, is whence the ACTC gets its name.
 
How much ACTC did I receive ?
Most families will receive the full amount, which is $3,000 for each child between the ages of 6 and 17 and $3,600 for children under the age of 6. The IRS is delivering families half of their 2021 Kid Tax Credit as monthly installments of $300 each child under the age of 6 and $250 per child between the ages of 6 and 17. This is done to provide money to families more quickly.

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