The additional child tax credit, the refundable part

How it works

The child tax credit itself only cancels tax owed. When the credit is bigger than the tax, the leftover can turn into a refund, but only up to this year's official actc refundable max (not yet verified here; see the official source below) per child and only based on earned income. The refundable amount is 15 percent of earned income above this year's official actc earned income floor (not yet verified here; see the official source below), or the leftover credit if that is smaller. Earned income means wages and self employment income, not interest, dividends, or benefits. A family with three or more children has a second way to figure it that uses Social Security and Medicare taxes paid. The IRS figures it on a schedule attached to the return, and the refund is paid with the rest of the refund. Returns that claim this credit are held by law until a date in mid February each year before the refund is sent.

What it gives

It pays money to a family even when the family owes no income tax at all.

It rises with earnings, so a parent who works more hours in a year can see a larger refund.

It is figured automatically by tax software and by the IRS form, with no separate application.

What it costs, or where the catch is

It is capped per child below the full child tax credit, so some of the credit can go unused.

A parent with little or no earned income receives little or none of it.

Refunds that include this credit are held until mid February, even when the return is filed in January.

A worked example

Kenji earns $18,000 from a warehouse job and has two children. His income tax before credits is $0, so the regular child tax credit cancels nothing. His earned income above the floor, if the floor were $2,500, is $15,500, and 15 percent of that is $2,325, since $15,500 times 0.15 equals $2,325. That amount, up to the per child cap for two children, comes back to him as a refund in late February.

Where it goes wrong

The usual mistake is a parent paid in cash who never reports the income, which leaves the earned income at zero and the refundable credit at zero with it.

Who confirms it for you

For your own numbers, a CPA or enrolled agent. This page explains how the rule works for people in general; it does not know your situation and does not tell you what to do.

The official source

IRS: Child tax credit. Every figure that changes by year comes from the site's rules table, which the watcher checks against the official page on a schedule; where a figure is not yet verified, this page says so instead of printing a number.