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:
- 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.
- 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.
- Support - the child must not have provided more than half of their own support.
- Dependent - you must claim the child as your dependent in order to be able to also claim the child tax credit
- Citizenship - the child must be a US citizen, US national or US resident alien with a valid tax identification number (social or ITIN).
- 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.