Extra Child Tax Credit
What Is the Additional Child Tax Credit?
The extra child tax credit was the refundable portion of the child tax credit. It very well may be claimed by families who owed the IRS not exactly their qualified child tax credit amount. Since the child tax credit was non-refundable, the extra child tax credit refunded the unused portion of the child tax credit to the taxpayer. This provision was dispensed with from 2018 to 2025 by the Tax Cuts and Jobs Act (TCJA).
Notwithstanding, under the TCJA, the child tax credit incorporates a few provisions for refundable credits. Moreover, on March 11, 2021, President Biden's American Rescue Plan was casted a ballot into law and made child tax credits fully refundable in 2021.
Understanding the Additional Child Tax Credit
A tax credit is a benefit given to eligible taxpayers to help reduce their tax liabilities. On the off chance that Susan's tax bill is $5,550 yet she meets all requirements for a $2,500 tax credit, she will just need to pay $3,050. Some tax credits are refundable, intending that on the off chance that the tax credit amounts to more than whatever is owed as tax, the individual will receive a refund. In the event that Susan's tax credit is actually $6,050 and is refundable, she will be given a check for $6,050 - $5,550 = $500.
Contingent upon what tax group a taxpayer falls in, they might be eligible to claim a tax credit. For instance, taxpayers with children might fit the bill for the child tax credit which assists with offsetting the costs of bringing up kids.
For the 2022 through 2025 tax year, the child tax credit permits eligible tax filers to reduce their tax liability by up to $2,000 per child. To be eligible for the child tax credit, the child or dependent must:
- Be 16 years or more youthful toward the finish of the tax year
- Be a U.S. citizen, national, or resident alien
- Have lived with the taxpayer for the greater part of the tax year
- Be claimed as a dependent on the federal tax return
- Not have given the greater part of their own financial help
- Have a Social Security number
Child Tax Credit versus Extra Child Tax Credit
Previously, the child tax credit was non-refundable, and that means the credit could reduce a taxpayer's bill to zero, however any excess from the credit wouldn't be refunded. Families who wanted to keep the unused portion of the child tax credit could go the route of another accessible tax credit called the extra child tax credit.
This credit was a refundable tax credit that families could meet all requirements for assuming they previously qualified for the non-refundable child tax credit. The extra child tax credit was great for families who owed not exactly the child tax credit and wanted to receive a refund for the surplus credit.
While the extra child tax credit was disposed of in 2018 under the Tax Cuts and Jobs Act (TCJA), up to $1,400 of the $2,000 child tax credit can be refundable for each qualifying child assuming certain conditions are met. For instance, a taxpayer needs to earn more than $2,500 for the tax year to fit the bill for any refund. To claim a refund, filers must complete Schedule 8812.
The American Rescue Plan made major changes to the child tax credit for 2021. The maximum credit rose to $3,000 (children up to 17) or $3,600 (children more youthful than six). Qualifying families began getting month to month checks (half of the full credit) in July 2021. The credit likewise turned out to be fully refundable in 2021, and families might claim the final part of the credit on their 2021 tax return. This child-related tax benefit starts to phase out for individual filers with children who earn more than $75,000 and joint filers earning more than $150,000.
The extra child tax credit in its previous form was killed from 2018 to 2025 by the Tax Cuts and Jobs Act (TCJA).
Illustration of the Additional Child Tax Credit
Before the TCJA, the IRS permitted families with an annual income of more than $3,000 to claim a refund utilizing the extra child tax credit. The tax credit relied heavily on how much the taxpayer earned and was calculated by taking 15% of the taxpayer's taxable earned income more than $3,000 up to the maximum amount of the credit, which was then $1,000 per child. The total amount above $3,000 (subject to annual changes for inflation) was refundable.
For instance, a taxpayer with two dependents meets all requirements for the child tax credit. Their earned income is $28,000, and that means income more than $3,000 is $25,000. Since 15% x $25,000 = $3,750 is greater than the maximum credit of $2,000 for two kids, they would have received the full portion of any unused credit.
So in the event that the taxpayer received a $800 child tax credit, they would be refunded a $1,200 Additional child tax credit. Nonetheless, assuming that the taxable earned income was $12,000 all things considered, 15% of this amount more than $3,000 is 15% x $9,000 = $1,350. Since the refundable portion of the credit can't surpass 15% of earned income above $3,000, the taxpayer would receive a maximum refund of $1,350, not $2,000.
Taxpayers who were residents of Puerto Rico with income below $3,000 were eligible assuming they had no less than three qualifying dependents and paid Social Security tax in excess of the amount of their earned-income credit for the year.
- For 2021, advance child tax credits could be claimed through regularly scheduled payments in the amount of half of their total child tax credit. The last part can be claimed by those eligible on their 2021 tax returns.
- The extra child tax credit was the refundable portion of the child tax credit.
- Child tax credits for 2021, be that as it may, were made fully refundable as part of the American Rescue Plan.
- It very well may be claimed by families who owed the IRS not exactly their qualified child tax credit amount.
- The extra child tax credit was killed for 2018 to 2025 by the Tax Cuts and Jobs Act,
Are There Additional Requirements for the 2021 Child Tax Credit?
To meet all requirements for advanced payments for the 2021 tax year to receive the Economic Impact Payment, had a principal home in the U.S. for the greater part the year (or file a joint return with a principal home in the United spouse States for the greater part the year), have a qualifying child who is under age 18 toward the finish of 2021 and who has a substantial Social Security number, and made not exactly certain income limits.
Is the New Child Tax Credit for 2020 or 2021?
President Biden's new child tax credit depends on 2020 tax returns and will be utilized when you file 2021 taxes in April 2022. The changes to the child tax credit apply (as of July 2021) for the tax year 2021 just, except if they are extended.
What Is the Difference Between Child Tax Credit and Additional Child Tax Credit?
Under President Biden's 2021 American Rescue Plan, the child tax credit offers a maximum credit of $3,600 (more youthful than six years old) and $3,000 (over age six and up to age 17) to those families who meet qualification requirements. The extra child tax credit (up to $2,000 per child) was disposed of in 2018 under the Tax Cuts and Jobs Act (TCJA).
Who Qualifies for the Additional Child Tax Credit?
The extra child tax credit was dispensed with in 2018, so nobody at present fits the bill for the extra child tax credit. In any case, the full new child tax credit is offered to parents (who file jointly) who make up to $150,000 per year.