What Is the Additional Child Tax Credit?

The Additional Child Tax Credit is a refundable federal tax credit designed to ensure that low- and moderate-income families can benefit from the Child Tax Credit (CTC), even if their income tax liability is too low to fully absorb it. While the regular CTC reduces taxes owed, the ACTC allows eligible taxpayers to receive the unused portion of the credit as a cash refund.

This refundable component has been a key feature of the credit since the early 2000s and is essential for making the CTC more equitable, especially for working families with limited income. Unlike nonrefundable credits, which only offset taxes owed, refundable credits can generate a tax refund when the credit amount exceeds the taxpayer's total income tax liability.

The One Big Beautiful Bill Act, enacted in July 2025, updated the ACTC by increasing the maximum refundable amount, adjusting the income formula, and aligning the eligibility rules with the full Child Tax Credit. These changes became effective for tax year 2025 and will be adjusted for inflation starting in 2026.

Key Takeaways

• The ACTC is the refundable portion of the Child Tax Credit.
• For tax year 2025, taxpayers can receive up to $1,700 per qualifying child as a refund.
• Refundability is calculated as 15% of earned income above $2,500.
• The taxpayer and qualifying child must meet Social Security number and eligibility criteria.
• The ACTC helps families with little or no tax liability benefit from the CTC.

How the ACTC Works

The Additional Child Tax Credit becomes relevant when the amount of Child Tax Credit for which a taxpayer qualifies exceeds the amount of their federal income tax owed. For example, if a family qualifies for $4,400 in CTC (for two children) but only owes $1,000 in federal income tax, they can apply the CTC to eliminate their tax liability and then claim up to $3,400 of the remaining credit as a refund through the ACTC—subject to earned income and refundability rules.

For 2025, the ACTC allows a refund of up to $1,700 per child. The refundable amount is determined using a specific income formula set by the IRS: taxpayers may receive a refund equal to 15 percent of their earned income exceeding $2,500, up to the per-child cap.

For example:

• A taxpayer with $10,000 of earned income has $7,500 above the $2,500 threshold.
• 15% of $7,500 equals $1,125.
• If they have one qualifying child, they may receive up to $1,125 in ACTC, assuming all other eligibility criteria are met.
• If they have two children, they may receive up to $2,250 in total refundable credit, subject to the $1,700 per-child cap.

Families with very low earned income may receive a smaller refund—or none at all—if their earnings do not exceed the $2,500 minimum threshold. Importantly, the ACTC cannot exceed the unused portion of the CTC.

Eligibility Requirements

Eligibility for the Additional Child Tax Credit depends on both the taxpayer’s and the child’s qualifications.

To receive the ACTC, the taxpayer must:

• Have at least one qualifying child who meets the criteria for the full Child Tax Credit.
• File a federal tax return (Form 1040) and complete Schedule 8812.
• Have earned income above $2,500 to qualify for a refundable amount.

The qualifying child must:

• Be under age 17 at the end of the tax year.
• Be a U.S. citizen, U.S. national, or resident alien.
• Be the taxpayer’s son, daughter, stepchild, foster child, sibling, or descendant.
• Live with the taxpayer for more than half of the year.
• Have a valid Social Security number issued by the return’s due date.
• Be claimed as a dependent on the taxpayer’s return.

Additionally, under the 2025 law, the taxpayer and spouse (if filing jointly) must also have valid work-eligible Social Security numbers to claim the ACTC. This update aligns the ACTC eligibility with requirements for the Earned Income Tax Credit and the full CTC, tightening compliance and reducing fraudulent claims.

Refundability Calculation and Limitations

The ACTC is not fully refundable by default. The amount that can be refunded is the lesser of:

1. The unused portion of the Child Tax Credit after reducing tax liability, and
2. 15% of the taxpayer’s earned income above $2,500, multiplied by the number of qualifying children, subject to the per-child cap.

For 2025, the per-child refundable limit is $1,700, which was increased from $1,600 in 2024. This amount is expected to rise in future years through inflation adjustments, starting in 2026.

If a taxpayer has three or more qualifying children, an alternative formula based on Social Security taxes paid may apply, but in most cases, the standard earned income formula results in a higher benefit and is used instead.

It is important to understand that the ACTC is not available to individuals who have no earned income or whose earned income does not exceed $2,500. As such, the ACTC does not reach the lowest-income families who are outside the labor force, which has been a point of policy debate.

Legislative Changes in 2025

The One Big Beautiful Bill Act significantly impacted the ACTC by making its expansion permanent. The most notable changes included:

• Increasing the maximum refundable amount to $1,700 per child beginning in 2025.
• Maintaining the $2,500 earned income threshold and the 15% phase-in rate.
• Indexing the refundable cap to inflation, starting in tax year 2026.
• Requiring valid SSNs for both the taxpayer and qualifying children, aligning ACTC rules with other federal tax credits.
• Ensuring that the ACTC remains permanently available, removing the sunset provision that previously threatened to reduce refundability after 2025.

These updates provide stability and predictability for working families who rely on the ACTC as part of their annual financial planning.

Claiming the ACTC

To claim the Additional Child Tax Credit, taxpayers must:

• File IRS Form 1040 and attach Schedule 8812.
• Accurately report earned income and dependents.
• Include valid Social Security numbers for the taxpayer, spouse (if applicable), and qualifying children.

Taxpayers should keep records of income, residency, relationship, and other documentation in case of IRS verification or audit. Mistakes in filing, such as entering incorrect SSNs or overstating earned income, can delay refunds or trigger penalties.

The Bottom Line

The Additional Child Tax Credit provides a vital financial lifeline to families whose income tax liability is too low to fully benefit from the regular Child Tax Credit. By offering up to $1,700 per child as a refundable credit, the ACTC helps working families access cash refunds to offset the costs of raising children.

With recent enhancements under the One Big Beautiful Bill Act, the ACTC has been made permanent, indexed for inflation, and brought into alignment with other refundable credits in terms of eligibility and compliance. While it does not extend to the lowest-income non-working families, it remains one of the most effective and widely used refundable tax benefits for parents and guardians across the country.