Before 2018, you would have been entitled to get $1000 for each of your three children via the Child tax credit program. The additional Child tax credit comes with a renewed policy. It allows families to claim a regular child tax credit. Moreover, you can make a claim even if you don’t owe any tax to the government.
Not only this, but the additional child tax credit program has also increased the amount from $1000 to $2000 per child. Along with that, you can receive $1400 as a refund.
Child Tax Credit Before 2018
Before the Child tax credit program was upgraded to include the additional child tax credit, there was no refund policy, instead, there existed a tax deduction mechanism. If you had three children and were entitled to the $3000 tax reduction, there was a policy for it if you wanted the benefit. You can only get the tax deduction if your annual tax amount exceeded $3000.
To better understand, have a look at the following example.
You owe $3500 to the government as your annual tax bill. You will only have to pay $500 because of the child tax credit. The remaining amount, $3000 would be deductedfrom the total bill.
Additional Child Tax Credit after 2018
With the additional child tax credit program, currently, in place, you can get a refund for at least a portion of your unused child tax credit. However, for this, you’ll have to fulfill the eligibility criteria. The criteria are the same as that of the earlier Child tax credit program with an additional eligibility criterion; that requires the family to earn at least $3000 income.
What are the eligibility criteria for the additional child tax credit?
The criteria are as follows:
- The child must be below 17 years of age by the end of the taxable year
- The child must be your responsibility. One can be your own child, stepchild, foster child, or an adopted child.
- Haven’t provided more than half of their own financial support for the year
- You must show that your child is dependent on your tax returns. You can only show that if your child fulfills the above-mentioned criteria.
- The child must be a US native
- The child must have lived with you for more than a year. However, there are a few exceptions. If your child was born or was stillborn during the tax year, he would be considered eligible. If your child has left the house for a temporary purpose such as schooling, vacation business, etc, your child will still be considered eligible. Lastly, if you are divorced, you may also get an exemption from a residency test.
- Your tax credit return will reduce if your income exceeds a certain amount. It would be determined by the tax filing authorities.
How does the additional child tax credit work?
The additional child tax credit is about 15% of your taxable income that is over $2500. Let’s say, you have three children and your household taxable income is $50,000. The ACTC will apply to $47,500. When you take out 15% of $47,500, you would get $7,125 as your tax amount.
As additional child tax credit has now increased the amount to $2000 per child, you will only be liable to pay $7125- $6000 (2000 x 3) .i.e. $1125.
However, if your gross taxable income is less than $6000, then you will receive a portion of ACTC. It is because the refundable amount cannot exceed 15% of your earned income.
All in all, before concluding this article, we would recommend you to collect your ACTC if you are eligible because it will serve you in the long run.