How to Qualify for the Additional Child Tax Credit

Feel like the coach of a small football team? The IRS gets it!

Whether you have just one on the way or five and counting, kids are expensive. That’s why you should take advantage of tax cuts whenever possible. In addition to claiming them as dependents, you may also qualify for some other credits. One that could end up benefiting you substantially is the Additional Child Tax Credit. Let’s see if this one is for you!

What is the Additional Child Tax Credit (VS. the Child Tax Credit)?

You’ve probably heard of the Child Tax Credit. I’ll sum it up for those of you who don’t (but also check out our other article which goes into more detail, “How to Claim the Child Tax Credit”). Basically, it is a credit that can reduce your tax liability up to $1,000 per qualifying child listed on your tax return. This credit is NON-refundable, meaning that it will reduce your tax liability to $0 but will never overflow into a refund for you.

Now that we’ve covered the Child Tax Credit, you’re probably wondering what the Additional Child Tax Credit is all about, right? This is the refundable credit that will fork over the difference that you weren’t able to claim from the Child Tax Credit.   

Let’s take a look at an example:

Cindy and Lou have three qualifying kids listed on their joint tax return. Their tax liability is $2,500. After applying their Child Tax Credit at $1,000 per child, they were able to get their tax liability down to $0. They then figured out that they qualified for the Additional Child Tax Credit. Cindy and Lou were able to claim that additional $500 as a tax refund!

Here’s the math:  $2,500 IRS tax liability – $3,000 total Child Tax Credit for three kids = – $500

What are the Additional Child Tax Credit Eligibility Requirements?

Although the Additional Child Tax Credit sounds great, you still need to make sure you qualify to claim it before the IRS gives you the no-go. You’ll need to meet all of the following to claim the credit:

1. You must qualify for the Child Tax Credit.
2. You cannot be filing form 2555 or 2555EZ.
3. Your Child Tax Credit must total more than your tax liability amount.
4. You must have $3,000 in taxable wages or self-employment income for the year.
5. You must be filing form 1040, 1040A, or 1040NR. Forms 1040-EZ and 1040NR-EZ will disqualify you.

If you do not meet one of more of these, then you cannot claim the ACTC. However, the Child Tax Credit could still apply to you.

How to use Form 8812 to calculate your credit amount

If you’re preparing your return online with RapidTax, then you won’t need to worry about forms such as the 8812. However, if you do decide to take a whack at the tax prep yourself, then this form will help calculate your Additional Child Tax Credit.

Part I: Filers Who Have Certain Child Dependent(s) with an ITIN

Fill this out for your kids who have ITINs and qualify you for the Child Tax Credit (may not apply to ALL dependents being claimed).

Part II: Additional Child Tax Credit Filers

Complete this section to see if you qualify for the Additional Child Tax Credit based on your Child Tax Credit calculations.

Part III: Certain Filers Who Have Three or More Qualifying Children

Continue to this section if you have more than three kids who qualify you for the credit.

Part IV: Additional Child Tax Credit

This is the amount that you will receive as your refundable credit.

Reduced Additional Child Tax Credit

It’s important to realize that not all taxpayers receive the same amount of the Additional Child Tax Credit. It is based on several factors, including the following:

1. Income
2. Number of children you are applying the credit for
3. Social Security and Medicare taxes
4. Earned Income Credit (EIC)

If you have one or two children who qualify for the credit, you’ll be issued the smaller of:

• The unused part of the Child Tax Credit, or
• 15% of your earned income greater than $3,000

If you have three or more children who qualify for the credit, you’ll be issued the smaller of:

• The unused part of the Child Tax Credit, or
• The larger of either;
  • 15% of earned income over $3,000, or
  • The sum of Social Security and Medicare taxes paid minus the EIC (earned income credit)

Do you qualify? Get a head start on your tax return then!

As some of you may already know, the IRS has taken precautions this tax season to reduce security issues. To do this, Congress has instituted a law within the Protecting Americans from Tax Hikes (PATH) Act. This law states that the IRS must wait until February 15th to issue certain tax refunds. The taxpayers that will be affected are all of those that claim the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC). This doesn’t mean you should panic or not take advantage of the credits you’re entitled to. If anything, get a jump start on filing your 2016 tax return so that you can get in line for the IRS to issue you that refund!