Tax credits are a valuable way for families to save on their tax bills. One tax credit that provides significant benefits to families is the Additional Child Tax Credit. This credit is designed to help families with children who have a qualifying credit, but not enough to eliminate their tax liability. In this article, we will look at what the Additional Child Tax Credit is, who is eligible for it, how much you can claim, and how to claim it on your taxes.

What is the Additional Child Tax Credit?

The Additional Child Tax Credit is a credit for families who have a qualifying child but cannot claim the full amount of the Child Tax Credit. The credit is refundable, which means that if the credit exceeds your tax liability, you could receive a refund. The Additional Child Tax Credit is added to any refund you receive from other credits, such as the Earned Income Tax Credit.

To qualify for the Additional Child Tax Credit, you must have at least one qualifying child and meet certain income requirements. The credit is calculated based on a percentage of your earned income above a certain threshold. The maximum amount of the credit for tax year 2021 is $1,400 per qualifying child. It’s important to note that the Additional Child Tax Credit is different from the Child Tax Credit, which has its own set of eligibility requirements and maximum credit amounts.

Who is Eligible for the Additional Child Tax Credit?

To qualify for the Additional Child Tax Credit, you must first qualify for the Child Tax Credit. You must have a qualifying child who is under the age of 17 at the end of the tax year, and who is claimed as a dependent on your tax return. The child must also have a valid social security number. Additionally, your income must be below a certain level, which varies based on your filing status.

It is important to note that the Additional Child Tax Credit is a refundable credit, meaning that if the credit exceeds your tax liability, you may receive a refund for the difference. However, the amount of the credit is limited to 15% of your earned income over $2,500. This means that if you have no earned income, you will not be eligible for the credit.

How Much Can You Claim for the Additional Child Tax Credit?

The amount of the Additional Child Tax Credit you can claim is calculated based on a percentage of your earned income above $2,500. The percentage is 15%, which means that for every $1,000 of earned income above $2,500, you could claim $150 in credit. There is also a maximum amount of the credit that you can claim. For 2021, the maximum amount of the credit is $1,400 per qualifying child.

It is important to note that in order to claim the Additional Child Tax Credit, you must first claim the regular Child Tax Credit. If the amount of your Child Tax Credit is greater than your tax liability, you may be eligible for the Additional Child Tax Credit. However, if you do not owe any taxes, you will not be able to claim the credit. Additionally, the credit is subject to income limits, so it is important to check if you qualify before claiming it on your tax return.

How to Calculate Your Additional Child Tax Credit?

To calculate your Additional Child Tax Credit, you will need to complete IRS Form 8812. This form will help you determine if you qualify for the credit and the amount you can claim. You will need to provide information about your qualifying child, your income, and any other credits you are claiming.

It is important to note that the Additional Child Tax Credit is a refundable credit, meaning that if the credit exceeds your tax liability, you may receive the excess as a refund. However, the credit is subject to income limitations and may be reduced or eliminated if your income is too high. It is recommended that you consult with a tax professional or use tax software to ensure that you are accurately calculating your credit.

The Difference Between Child Tax Credit and Additional Child Tax Credit

The main difference between the Child Tax Credit and the Additional Child Tax Credit is that the Child Tax Credit is non-refundable, while the Additional Child Tax Credit is refundable. This means that if you qualify for both credits and your tax liability is reduced to zero by the Child Tax Credit, you will not receive a refund for any remaining credit. However, if your tax liability is reduced to zero by the Additional Child Tax Credit, you could receive a refund for any remaining credit.

Another difference between the two credits is the income threshold for eligibility. To qualify for the Child Tax Credit, your modified adjusted gross income (MAGI) must be below $200,000 for single filers and $400,000 for married filing jointly. However, to qualify for the Additional Child Tax Credit, your MAGI must be below $50,000 for single filers and $100,000 for married filing jointly. This means that families with lower incomes may be eligible for the Additional Child Tax Credit even if they do not qualify for the full Child Tax Credit.

How to Claim Your Additional Child Tax Credit on Your Taxes?

To claim your Additional Child Tax Credit on your taxes, you will need to complete IRS Form 8812. This form must be attached to your tax return. You will also need to provide information about your qualifying child, your income, and any other credits you are claiming. If you are working with a tax professional, they can help you ensure that you are correctly claiming the credit.

It is important to note that the Additional Child Tax Credit is a refundable credit, which means that if the credit exceeds your tax liability, you may receive a refund for the difference. However, the credit is subject to income limitations, so it is important to check if you are eligible before claiming it.

Additionally, if you have multiple qualifying children, you may be able to claim the credit for each child. However, the maximum credit amount per child is $1,400 for the tax year 2020. It is important to keep accurate records and documentation to support your claim for the credit.

Common Mistakes to Avoid When Claiming the Additional Child Tax Credit

One of the most common mistakes made when claiming the Additional Child Tax Credit is not providing accurate information about your qualifying child. Make sure you have their correct social security number and that they meet all the eligibility requirements. Another mistake is not calculating the credit correctly. Be sure to double-check your math and use the appropriate percentages and maximum amounts.

Another mistake to avoid when claiming the Additional Child Tax Credit is not filing your taxes on time. If you miss the deadline, you may not be able to claim the credit at all. Additionally, failing to keep proper records and documentation can also lead to errors and delays in receiving the credit. Keep all necessary receipts and forms organized and easily accessible to ensure a smooth and accurate filing process.

What Happens if You Don’t Qualify for the Additional Child Tax Credit?

If you do not qualify for the Additional Child Tax Credit, there are still other tax credits available to families with children. Some of these credits include the Child and Dependent Care Credit, the Adoption Credit, and the Earned Income Tax Credit. Consulting with a tax professional can help ensure that you are taking advantage of all the credits available to you.

It is important to note that not qualifying for the Additional Child Tax Credit does not necessarily mean that you will owe more taxes. The credit is non-refundable, meaning it can only reduce your tax liability to zero. However, if you have other tax credits or deductions, you may still be able to reduce your tax bill.

In addition, if you have experienced a change in your financial situation, such as a job loss or a decrease in income, you may be eligible for other forms of government assistance. This could include programs such as Medicaid, SNAP (Supplemental Nutrition Assistance Program), or TANF (Temporary Assistance for Needy Families). It is important to research and understand all of the resources available to you in order to make the most informed decisions for your family.

Tips for Maximizing Your Additional Child Tax Credit

To maximize your Additional Child Tax Credit, consider adjusting your withholdings to increase your take-home pay. This can help ensure that you have more money available to you throughout the year. Additionally, consider contributing to a tax-advantaged retirement account like a 401(k) or IRA, as this can decrease your taxable income and increase the amount of your credit.

Another way to maximize your Additional Child Tax Credit is to make sure you are claiming all eligible dependents. This includes not only your children, but also any other qualifying dependents such as elderly parents or disabled relatives. Keep in mind that you may need to provide documentation to prove their eligibility.

Other Available Tax Credits for Families with Children

There are many tax credits available to families with children, beyond the Additional Child Tax Credit. Some of these credits include the Child and Dependent Care Credit, the Adoption Credit, and the Earned Income Tax Credit. These credits can help offset the cost of child care, the expenses associated with adopting a child, and provide additional income for low and moderate-income families.

The Child and Dependent Care Credit is available to families who have incurred expenses for the care of a child or dependent while they work or look for work. The credit can be up to 35% of qualifying expenses, with a maximum of $3,000 for one dependent or $6,000 for two or more dependents.

The Adoption Credit is available to families who have adopted a child. The credit can help offset the expenses associated with the adoption process, including adoption fees, court costs, and travel expenses. The maximum credit for 2021 is $14,440 per child.

How the American Rescue Plan Affects the Additional Child Tax Credit

The American Rescue Plan, passed in March 2021, made significant changes to the Child Tax Credit and the Additional Child Tax Credit. The changes include an increase in the amount of the credit, an expansion of eligibility to include more families with children, and advance payments of the credit. These changes will provide much-needed relief to families with children and help to reduce child poverty.

In conclusion, the Additional Child Tax Credit is a valuable credit for families who have a qualifying child but cannot claim the full amount of the Child Tax Credit. This credit can help offset the cost of raising children and provide much-needed financial relief. Make sure to consult with a tax professional if you have any questions about claiming the credit or take advantage of available resources to ensure accuracy when filing.

It’s important to note that the American Rescue Plan also made changes to the income limits for the Additional Child Tax Credit. Previously, families with an income of $2,500 or more could claim the credit, but the new law increases the income limit to $150,000 for married couples filing jointly and $112,500 for heads of household. This means that more families will be eligible for the credit and will receive a larger amount. It’s important to check your eligibility and take advantage of this valuable credit if you qualify.