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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 11356
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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When she files she shows only $700.00 refund, what is she

Customer Question

when she files she shows only $700.00 refund, what is she doing wrong?
Submitted: 3 months ago.
Category: Tax
Expert:  Lane replied 3 months ago.

OK First, it's important to understand that the earned income credit isn't refundable (meaning that if she owes no tax, the credit doesn't help.

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Then for the child tax credit, it's not refundable either BUT that's where the ADDITIONAL tax credit comes in.

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See this:

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The (Regular) Child Tax Credit

The Child Tax Credit is worth up to $1,000 for each qualifying child. Remember that a tax credit reduces your tax liability dollar-for-dollar – so a $1,000 tax credit actually takes $1,000 off of your tax balance.

However, since the Child Tax Credit is non-refundable, it cannot reduce the tax you owe beyond $0. In other words, if your tax liability is $500 and you claim the Child Tax Credit, your liability will be reduced to $0 (meaning you can only take half of the credit). This is where the Additional Child Tax Credit comes into play.

The Additional Child Tax Credit

If the amount of your Child Tax Credit is more than the amount of tax you owe, you may be eligible to claim the Additional Child Tax Credit, allowing you to receive a payment (i.e. tax refund) for the unused portion of your Child Tax Credit.

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The Additional Child Tax Credit is a refundable credit, which means it can reduce your tax balance below zero and result in a tax refund. Basically, if you have any portion of your Child Tax Credit “left over,” you may be eligible to receive some or all of it as a payment through the Additional Child Tax Credit.

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The Additional Child Tax Credit may bring you a tax refund even if you don’t owe any tax. However, if you are able to claim the full amount of the Child Tax Credit, you will not be eligible for the Additional Child Tax Credit.

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Note that the Additional Child Tax Credit is not a credit for additional children. It is a credit in addition to the regular Child Tax Credit. See IRS Publication 972 (Child Tax Credit) for more information about the Child Tax Credit and the Additional Child Tax Credit.