In 2018 under Tax Cuts & Jobs Act (TCJA), for Child Tax Credit (CTC), which portion applies first: the refundable portion of $1400 or the non-refundable portion of $600?

[benefitsGeek]

Under TCJA, for Child Tax Credit (CTC) of $2,000, which portion applies first: refundable portion ($1,400) or non-refundable portion ($600)?

Assume family Income is in the range [$70k to $190k].

Could you kindly provide examples for a family filing jointly with TWO children?

Example 1: Family owes IRS -$1,400 before applying CTC. After CTC, would the family return be +$1,400 (refundable first) or +$2,600 (non-refundable first)?

Example 2: Family owes IRS -$2,800 before applying CTC. After CTC, would the family return be +$0 (refundable first) or +$1,200 (non-refundable first)?

[TaxGuyBill]

It is not based on what you "owe" the IRS.  Is is based on your total income tax on the tax return.

Unless you have certain other very large non-refundable credits, the full $2000 per child can probably be used (based on over $70,000 of income).

[benefitsGeek]

Thank you. So what does non-refundable mean? I thought this is about what one owes IRS.

[VolvoGirl]

Refundable credits are treated as payments and are refundable to you. These credits are added to the federal income tax withheld and any estimated tax payments you made. If this total is more than your total tax, the excess will be refunded to you.

Some credits like the Child Care Credit and Child Tax Credit are Non-Refundable.   This means that it cannot be used to reduce your tax liability below zero.  If you do not have a tax liability (you need income after you take off the standard or itemized deductions and personal exemptions), you have nothing to take the credit against.  Your Federal income tax withheld is not included in the calculation of your tax liability.  Your Tax Liability is on form 1040 line 44 or 1040A line 28.

In other words you have to have a tax to reduce.  If your income is low and you don't owe any tax you won't get any credit back.  Or if you only owe a small tax then that's all you can get back.

[benefitsGeek]

Thank you. That addresses my confusion. So, tax liability is NOT what I owe IRS. It is the number obtained from tax tables given taxable income. Thanks a lot.

[VolvoGirl]

Yes the tax liability is the tax you owe on your taxable income.  But it’s not the bottom line refund or tax due.  Tax liability is the starting tax.  Then you add any other taxes and penalties you might have like the 10% Early Withdrawal Penalty on IRAs or ACA Heath Care Penalty or self employment tax.  Then you subtract your withholding, estimated payments and any credits you have to figure the tax due or refund on your return.

[Texas Roger]

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[benefitsGeek]

Thanks @VolvoGirl for your help.

[benefitsGeek]

@VolvoGirl , how do I mark your answer as recommended?

[VolvoGirl · Accepted solution]

You can’t recommend comments.  I don’t know if I change my comment to an answer if it will mess up the thread.  So you can recommend me on this answer.  Thank You!  Glad I could help.