Yes, the Child Tax Credit (CTC) can be refundable under certain conditions. The refundable portion of the CTC is known as the Additional Child Tax Credit (ACTC). Here are the key details:
- General Refundability:
- For tax years 2018 through 2025, the CTC is $2,000 per qualifying child, and up to $1,500 of this amount is refundable as the ACTC. This means that if the CTC exceeds the amount of taxes owed, the taxpayer can receive up to $1,500 as a refund.
- Special Rules for 2021:
- For the tax year 2021, the American Rescue Plan Act (ARPA) made significant changes to the CTC. The credit amount was increased to $3,000 per qualifying child aged 6 through 17 and $3,600 per qualifying child aged 5 and under. The entire amount of the CTC was made fully refundable if the taxpayer (or spouse if filing jointly) had a principal place of abode in the United States for more than six months of the year or was a bona fide resident of Puerto Rico.
- Eligibility for Refundable Credit:
- To qualify for the refundable portion of the CTC (ACTC), the taxpayer must have earned income of more than $2,500. The refundable amount is calculated as 15% of the taxpayer’s earned income over $2,500, up to the maximum refundable amount.
- Phase-Out of Credit:
- The CTC begins to phase out when the taxpayer’s modified adjusted gross income (MAGI) exceeds $200,000 ($400,000 for married couples filing jointly). For the tax year 2021, the phase-out thresholds were $150,000 for joint filers, $112,500 for head of household, and $75,000 for single filers.
- Identification Requirements:
- No credit is allowed unless the taxpayer includes the name and taxpayer identification number (TIN) of each qualifying child on the tax return. The TIN must be issued on or before the due date for filing the return.
- Special Rules for Puerto Rico and U.S. Territories:
- Bona fide residents of Puerto Rico and other U.S. territories may be eligible to claim the ACTC if they have one or more qualifying children.
In summary, the Child Tax Credit can be refundable through the Additional Child Tax Credit, subject to specific income thresholds and eligibility criteria. For the tax year 2021, the entire CTC was fully refundable under certain conditions.
Sources:
§ 24. Child tax credit
Publication 17 (2023)
CCA 199948027
SCA 200235031
IRM Part 4. Examining Process. Chapter 19. Liability Determination. Section 14. Refundable Credits Strategy
IRM Part 3. Submission Processing. Chapter 38. International Tax Returns and Documents. Section 147. International Notices
Publication 4152 (10/2023)
