So Cal Mobile Tax Prep
Find me on:
  • Home
  • Services & Benefits
  • Contact
  • SCMTP Blog
  • FAQ
  • CLIENT PORTAL

What you need to know: Additional Child Tax Credit

10/26/2016

Comments

 
Last week we learned about the child tax credit, this week we'll discuss the Additional Child Tax Credit. It's just like it sounds - an additional credit for any qualifying children claimed on a tax return. This credit is also worth up to $1000 and it is REFUNDABLE but more often than not it only refunds the unused portion of the child tax credit.

To recap the child tax credit can only be credited up to the amount of ordinary income tax assessed and it is NON-REFUNDABLE. Since the Additional Child Tax Credit is refundable it is credited after all other taxes have been calculated, including the self-employment tax. 

Here's where it gets a bit complicated. The amount of the additional child tax credit is dependent upon several factors:
     -was any portion of the child tax credit used?
     -are any other taxes being assessed (i.e. self-employment, individual responsibility (Healthcare penalty),
       early retirement plan distribution penalty etc.
     -any other taxes credits or federal income taxes withheld (from paychecks)

Depending on the above you may receive all, some or none of the additional child tax credit. Here's what that scenario might look like in simplified terms:

Ordinary Income Tax -$250
Child Tax Credit         +$250

Self Employment Tax -$500
Health Ins. Penalty     -$100
Federal Tax Withheld +$450
Additional CTC            +$750

Federal Refund **$600**

Since $250 of the child tax credit has already been used we only have $750 left to be credited. However, there is federal income tax withheld that will be applied to both the self employment tax and the health insurance penalty before the Additional Child Tax Credit. And because the federal income tax is applied first you receive the larger benefit of the refundable amount of the Additional CTC.

It's a lot to think about and be aware of but that's why tax preparers exist! And quite honestly if you're preparer is using any decent professional software the child tax credit and the additional CTC should be automatically calculated once the dependent and income information is complete entered into the return.

That's it for the Child Tax Credit. Next week, we'll learn about Education Credits!
Comments

What you need to know: Child Tax Credit

10/19/2016

Comments

 
 The child tax credit is a NON-REFUNDABLE credit of up to $1000 for each qualifying child claimed on a tax return.

Non-refundable means that you may only receive a credit up to the amount of ordinary income tax determined on line 43 of Form 1040. For example if your tax is calculated to be $500 then the non-refundable portion of your child tax credit will also be $500.

But what happens to the other $500?? Glad you asked. The answer is you may possibly receive the balance of the child tax credit from the ADDITIONAL CHILD TAX CREDIT. This is the REFUNDABLE portion of the credit. The additional child tax credit is calculated after your ordinary income tax on Form 1040 line 43 has been effectively paid off by other credits on lines 48-54 including the child tax credit.

The child tax credit is also limited to filers whose modified AGI is under certain dollar limits. Once you have surpassed these limits the credit phases out until it reaches $0.

There is a lot to know about the child tax credit, here are the basics from the IRS website.

You Must Have a Qualifying Child to Claim the Credit. Each child claimed must meet the following six conditions to receive the child tax credit:
  1. Age - The child must be under the age of 17. This means that the year your child turns 17 is the year you will no longer receive the credit for that child.
  2. Relationship - child must be either at son, daughter, stepchild, foster child, brother, sister, stepbrother/sister, grandchild, niece, nephew or a descendant of any of these.
  3. Support - the child must not have provided more than half of their own support.
  4. Dependent - you must claim the child as your dependent in order to be able to also claim the child tax credit
  5. Citizenship - the child must be a US citizen, US national or US resident alien with a valid tax identification number (social or ITIN).
  6. Residence - the child must have lived with you for more than half the year. There are different rules and exceptions for separated or divorced parents.
​
The child tax credit is one of the most common credits taken and is very effective in offsetting income tax. There are other credits that can be taken advantage of to reduce income tax and I will certainly be covering those topics soon.
Comments
<<Previous

      To Stay up to day on important tax information all year subscribe to our monthly newsletter.

    Subscribe to Newsletter

    Archives

    January 2018
    November 2017
    September 2017
    August 2017
    July 2017
    June 2017
    January 2017
    December 2016
    November 2016
    October 2016
    January 2015
    August 2013
    March 2013
    January 2013
    November 2012
    September 2012
    August 2012
    April 2012
    January 2012
    February 2011
    January 2011
    December 2010

    RSS Feed