What is the difference between Child Tax Credit and Additional Child Tax Credit?

The difference between CTC and ACTC has been a top question lately.  Let’s try to clear this up… There are differences between the child tax credit (CTC), the Additional Child Tax Credit (ACTC) and the Earned Income Tax Credit (EITC). In a nutshell, the EITC is not “related” to the CTC or the ACTC. But the CTC is related to the ACTC. They are each calculated differently and not all of them are refundable.

The Earned Income Tax Credit (EITC) is a refundable tax credit based on income, which as the name implies is based on “Earned Income”. Note that there are different types of income and not all, for example Social Security income, is considered earned. Both individuals with and without children qualify for this credit, however there is a maximum income to receive the EITC and the amount of the credit increases based on the number of dependents. There are rules to determine who qualifies as a dependent: http://igotmyrefund.com/earned-income-tax-credit-qualifying-child-rules/ The guidelines for a qualifying child are generally easy to understand, but in some cases, for example in a divorce, custody rules for EITC can be confusing – and oftentimes debatable between parents. So, the actual amount of the credit will depend on your earned income (these limits change each year and whether you have qualified dependents. Here are the 2016 limits: https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/eitc-income-limits-maximum-credit-amounts)

The Child Tax Credit (CTC) is called a “partially” refundable tax credit, you must have a qualified dependent (age limits are different than the EITC); however the amount is up to $1000 for each dependent. It can be claimed only if you have a child, different from the EITC in that regard. How this credit works is that it can reduce a tax liability (say you end up owing 300), claiming the CTC will reduce that amount to zero. It is related to, but often confused with the Additional Child Tax Credit (ACTC).

The Additional Child Tax Credit (ACTC) is refundable like the EITC, but unlike the CTC. It is the refundable portion of the CTC so to speak. The ACTC amount is related to the CTC in that it is calculated when you claim the CTC, hence the name “additional” child tax credit and the difference is the portion refundable. There are income minimums (set each year) and is calculated differently if you have 3 or more dependents. Essentially, the ACTC reduces the portion of CTC that is refundable.

Refunds are ONLY being delayed for tax returns that claimed EITC and/or ACTC.  Here is more information about the Tax Refund Delay due to the PATH Act.  We are not tax professionals and always recommend seeking the advice of one; or, plugging your numbers in to one of the companies like TurboTax who will auto-magically calculate everything for you.  We hope this helps clear up the difference between the CTC and ACTC.