In addition to the nonrefundable Child Tax Credit and Credit for Other Dependents that is claimed on Line 12a of Form 1040, a taxpayer with one or more qualifying children may be able to claim the refundable Additional Child Tax Credit on Schedule 8812. The taxpayer is eligible for the refundable credit if some portion of the nonrefundable Child Tax Credit was disallowed because the taxpayer’s tax liability was reduced to zero before the entire Child Tax Credit was used.
If the nonrefundable child tax credit was phased out due to adjusted gross income limitations of $400,000 for a taxpayer filing as married filing jointly and $200,000 for all other filing statuses, no additional credit will be allowed.
The refundable Additional Child Tax Credit is calculated on Schedule 8812 and is reported on Line 17b of Form 1040. The Schedule 8812 is automatically generated in Keystone Tax Solutions Pro when necessary, depending on the answers to due diligence questions about the dependents, the amount of earned income, and the tax liability on the return. If present in the return, it will be visible in the View Results menu.
The actual calculation of the refundable Child Tax Credit is predicated on the following:
Taxpayers with one or two children – The lesser of:
- The disallowed portion of the regular child tax credit, or
- 15% of the taxpayer’s earned income in the excess of $2,500
Taxpayers with three or more children – The lesser of:
- The disallowed portion of the regular child tax credit, or
- The larger of:
- 15% of the taxpayer’s earned income in the excess of $2,500
- FICA and Medicare tax paid minus earned income credit.
While Schedule 8812 is generated automatically, there are two situations in which the calculation on the schedule may need to be modified. To modify the calculation on Schedule 8812, from the Main Menu of Keystone Tax Solutions Pro select:
- Credits Menu
- Child Tax Credit
- Select Amount to (+/-) to Taxable Earned Income for Form 8812 to adjust the amount on Schedule 8812 Line 6a (Earned Income) if needed.
- Select Railroad Employee Representative Amount to enter an amount that will plug into Line 12 of the Line 9 Worksheet for Schedule 8812.
NOTE: This is a guide on how the Additional Child Tax Credit is calculated in the Keystone Tax Solutions Pro program. This is not intended as tax advice.
Additional Resources:
Schedule 8812, Child Tax Credit