What Is the Additional Child Tax Credit?

The additional child tax credit was the refundable portion of the child tax credit. It could be claimed by families who owed the IRS less than their qualified child tax credit amount. Since the child tax credit was non-refundable, the additional child tax credit refunded the unused portion of the child tax credit to the taxpayer. This provision was eliminated from 2018 to 2025 by the Tax Cuts and Jobs Act (TCJA).

However, under the TCJA, the child tax credit includes some provisions for refundable credits. In addition, on March 11, 2021, President Biden’s American Rescue Plan was voted into law and made child tax credits fully refundable in 2021.

Understanding the Additional Child Tax Credit

A tax credit is a benefit given to eligible taxpayers to help reduce their tax liabilities. If Susan’s tax bill is $5,550 but she qualifies for a $2,500 tax credit, she will only have to pay $3,050. Some tax credits are refundable, meaning that if the tax credit amounts to more than what is owed as tax, the individual will receive a refund. If Susan’s tax credit is actually $6,050 and is refundable, she will be given a check for $6,050 – $5,550 = $500.

Depending on what tax group a taxpayer falls in, they may be eligible to claim a tax credit. For example, taxpayers with children may qualify for the child tax credit which helps to offset the costs of raising kids.

For the 2022 through 2025 tax year, the child tax credit allows eligible tax filers to reduce their tax liability by up to $2,000 per child. To be eligible for the child tax credit, the child or dependent must:

• Be 16 years or younger by the end of the tax year
• Be a U.S. citizen, national, or resident alien
• Have lived with the taxpayer for more than half of the tax year
• Be claimed as a dependent on the federal tax return
• Not have provided more than half of their own financial support
• Have a Social Security number

Child Tax Credit vs. Additional Child Tax Credit

Previously, the child tax credit was non-refundable, which means the credit could reduce a taxpayer’s bill to zero, but any excess from the credit would not be refunded. Families who wanted to keep the unused portion of the child tax credit could go the route of another available tax credit called the additional child tax credit.

This credit was a refundable tax credit that families could qualify for if they already qualified for the non-refundable child tax credit. The additional child tax credit was ideal for families who owed less than the child tax credit and wanted to receive a refund for the surplus credit.

While the additional child tax credit was eliminated in 2018 under the Tax Cuts and Jobs Act (TCJA), up to $1,400 of the $2,000 child tax credit can be refundable for each qualifying child if certain conditions are met. For example, a taxpayer needs to earn more than $2,500 for the tax year to qualify for any refund. To claim a refund, filers must complete Schedule 8812.

The American Rescue Plan created major changes to the child tax credit for 2021. The maximum credit rose to $3,000 (children up to 17) or $3,600 (children younger than six). Qualifying families started receiving monthly checks (half of the full credit) in July 2021. The credit also became fully refundable in 2021, and families may claim the second half of the credit on their 2021 tax return. This child-related tax benefit begins to phase out for individual filers with children who earn more than $75,000 and joint filers earning more than $150,000.

Example of the Additional Child Tax Credit

Before the TCJA, the IRS allowed families with an annual income of more than $3,000 to claim a refund using the additional child tax credit. The tax credit depended on how much the taxpayer earned and was calculated by taking 15% of the taxpayer’s taxable earned income over $3,000 up to the maximum amount of the credit, which was then $1,000 per child. The total amount above $3,000 (subject to annual adjustments for inflation) was refundable.

For example, a taxpayer with two dependents qualifies for the child tax credit. Their earned income is $28,000, which means income over $3,000 is $25,000. Since 15% x $25,000 = $3,750 is greater than the maximum credit of $2,000 for two kids, they would have received the full portion of any unused credit.

So if the taxpayer received an $800 child tax credit, they would be refunded a $1,200 Additional child tax credit. However, if the taxable earned income was $12,000 instead, 15% of this amount over $3,000 is 15% x $9,000 = $1,350. Because the refundable portion of the credit cannot exceed 15% of earned income above $3,000, the taxpayer would receive a maximum refund of $1,350, not $2,000.

Taxpayers who were residents of Puerto Rico with income below $3,000 were eligible if they had at least three qualifying dependents and paid Social Security tax in excess of the amount of their earned-income credit for the year.

What Is an Attorney-in-Fact?

An attorney-in-fact, also called an “agent,” is a person who is authorized to act on behalf of another person, known as the “principal,” typically to perform business or other official transactions. The principal usually designates someone as their attorney-in-fact by assigning them power of attorney, although a court may choose to assign it if the person being represented is incapacitated. The rules regulating power of attorney vary from state to state.

An attorney-in-fact is not necessarily a lawyer. Indeed, attorneys-in-fact don’t require any special qualifications at all. They can be a family member or close friend. Power of attorney may also be granted to more than one person. In such a case it should be stated whether a simple majority or unanimity is required for an action to be taken.

Attorney-in-Fact and Power of Attorney

An attorney-in-fact is a person who has been legally appointed to act on behalf of another person in a legal or business matter. The person appointing the attorney-in-fact is called the “principal,” and the attorney-in-fact is sometimes referred to as the “agent.”

An attorney-in-fact is usually appointed through a legal document called a power of attorney (POA). This document gives the attorney-in-fact the authority to make decisions and take actions on behalf of the principal in a variety of legal and financial matters. For example, an attorney-in-fact might be given the power to sign documents, manage a bank account, or sell property on behalf of the principal.

The attorney-in-fact is not required to be an actual lawyer, but they must act in the best interests of the principal and follow any instructions or guidelines set forth in the power of attorney. The attorney-in-fact is also required to keep the principal’s affairs confidential and to keep records of all actions taken on behalf of the principal.

It’s important to note that an attorney-in-fact is not the same as a lawyer or an attorney. A lawyer is a professional who is licensed to practice law, while an attorney-in-fact is simply a person who has been given the authority to act on behalf of another person.

Types of Power of Attorney

There are two basic types of power of attorney (POA) granted to attorneys-in-fact.

• General – General power of attorney grants the attorney-in-fact not only the right to conduct any business and sign any documents on behalf of the principal, but to make decisions, including financial decisions, on their behalf.
• Limited – Under a limited power of attorney assignment, also sometimes known as “special power of attorney,” the attorney-in-fact can be authorized to conduct certain transactions and make some decisions but not others. They are limited to the topics specified in the assigning document.

The Powers and Duties of an Attorney-in-Fact

If the attorney-in-fact is designated as a general power of attorney, they are allowed to conduct any actions that the principal would reasonably take. This means an attorney-in-fact would be able to open and close bank accounts, withdraw funds, trade stocks, pay bills, and cash checks—all on behalf of the principal.

With a limited power of attorney, the attorney-in-fact is granted broad powers in one or more areas but not others. For example, the attorney-in-fact could be authorized to carry out transactions at the direction of the principal but not to make business or financial decisions. It could also be narrower, such as only granting the right to sign documents related to the pending sale of a specific piece of property.

Attorney-in-Fact vs. Attorney-at-Law

As noted above, an attorney-in-fact need not be a lawyer. And another term for “lawyer” is “attorney-at-law.” If you have passed a state bar exam and are thus legally qualified in that state to prosecute and defend actions in a court on behalf of a client who has retained you, then you are an attorney-at-law.

Their functions are also different. An attorney-in-fact must make decisions for their principal, while an attorney-at-law makes no decisions for their client. Instead, they offer advice to their client and can represent them in the courtroom.

Durable Power of Attorney

A power of attorney generally terminates when a person dies, becomes incapacitated, or consciously chooses to revoke it via a notice filed in court. It can also end if it has a set date or its purpose has been accomplished. However, if it has been designated as a “durable” power of attorney, the attorney-in-fact retains the power of attorney should a principal become incapacitated. In such a situation the attorney-in-fact can continue to make decisions for the principal, including in matters of finance and healthcare.

Durable power of attorney can be granted ahead of time on condition that it only takes effect due to a triggering event, such as when the principal becomes incapacitated. This is also called a “springing” power of attorney. In this case it is a good idea to name one or more successors, as the original designee may be unavailable or, due to changed circumstances, be unwilling to assume the responsibility of becoming an attorney-in-fact.

The Bottom Line

An attorney-in-fact is someone who is granted authority to make decisions on behalf of another person, known as the “principal.” Such authority is granted via a written document providing power of attorney to the attorney-in-fact. Power of attorney can be either general or limited to certain specified transactions and topics. Typically, it only lapses if the principal dies, becomes incapacitated, or consciously revokes it through a notice filed in court. However, if it is a durable power of attorney, the attorney-in-fact will continue to serve if the principal becomes incapacitated.

Making a decision to appoint an attorney-in-fact should not be done lightly, and the person so designated should be a person or persons (you can appoint more than one) whom you trust. Family members and close friends are popular choices. If you appoint more than one, be sure to specify if decisions can be made by majority vote or must be unanimous.

What Is 501(c)?

501(c) is a designation under the United States Internal Revenue Code (IRC) that confers tax-exempt status on nonprofit organizations. Specifically, it identifies which nonprofit organizations are exempt from paying federal income tax.

The government offers this tax break to promote the presence of organizations that exist purely for the public good and help them stay afloat. Common tax-exempt organizations include charities, government entities, advocacy groups, educational and artistic groups, and religious entities. 

Types of 501(c) Organizations

Under subsection 501(c), there are multiple sections that delineate the different types of tax-exempt organizations, according to their purpose and operations.

The most common include:

• 501(c)(1): Any corporation that is organized under an act of Congress that is exempt from federal income tax
• 501(c)(2): Corporations that hold a title of property for exempt organizations
• 501(c)(3): Corporations, funds, or foundations that operate for religious, charitable, scientific, literary, or educational purposes
• 501(c)(4): Nonprofit organizations that promote social welfare
• 501(c)(5): Labor, agricultural, or horticultural associations
• 501(c)(6): Business leagues, chambers of commerce, etc., that are not organized for profit
• 501(c)(7): Recreational organizations

501(c)(3) Organizations

The 501(c)(3) organization is probably the most familiar tax category outlined in Section 501(c)(3) of the IRC. It covers the sort of nonprofits that people commonly come into contact with, and donate money to (see Special Considerations, below).

In general, there are three types of entities that are eligible for 501(c)(3) status: charitable organizations, churches/religious entities, and private foundations. 

Other Types of 501(c) Organizations

The 501(c) designation has expanded over time to encompass more types of organizations.

Other organizations that qualify for listing under this designation can potentially include:

• Fraternal beneficiary societies that operate under the lodge system and provide for the payment of life, illness, and other benefits for their members and dependents
• Teacher’s retirement fund associations, so long as they are local in nature and none of their net earnings grow for the benefit of a private shareholder
• Benevolent life insurance associations that are local
• Certain mutual cooperative electric and telephone companies
• Nonprofit, co-op health insurers
• Cemetery companies that are owned and operated for the exclusive benefit of their members or are not operated for profit
• Credit unions that do not have capital stock organized
• Insurers—aside from life insurance companies—with gross receipts that are less than $600,000
• A variety of trusts for such purposes as providing supplement unemployment benefits and pensions
• Organizations whose membership is made up of current and former members of the armed forces of the United States or their spouses, widows, descendants, and auxiliary units in their support

Tax-Deductible Donations to 501(c) Organizations

In addition to being tax-exempt themselves, 501(c) organizations offer a tax advantage to others: A portion of donations they receive may be deductible from a taxpayer’s adjusted gross income (AGI). Organizations falling under section 501(c)(3)—which are primarily charities and educational or social-welfare-orientated nonprofits—are often qualified to offer this benefit to donors.

In general, an individual who itemizes deductions on their tax return may deduct contributions to most charitable organizations up to 50% (60% for cash contributions) of their AGI computed without regard to net operating loss carrybacks. Individuals generally may deduct charitable contributions to other organizations up to 30% of their AGI.

A charity or nonprofit must have 501(c)3 status if you plan to deduct your donation to it on your federal tax return. The organization itself can often tell you which sorts of donations are deductible, and to what extent—for example, if you buy a one-year museum membership for $100, $50 might be deductible.

The Bottom Line

Organizations that are formed strictly to help the public and not primarily to make a profit, as is the case with most businesses, are an important presence in society. The U.S. government rewards these entities with a 501(c) designation and tax-exempt status because they reduce the burden on the state and improve the lives of the population.

We aren’t just talking about charities here, either. The IRS recognizes dozens of different types of nonprofit organizations as 501(c)s, including some credit unions and insurers.

What Is Autocorrelation?

Autocorrelation is a mathematical representation of the degree of similarity between a given time series and a lagged version of itself over successive time intervals. It’s conceptually similar to the correlation between two different time series, but autocorrelation uses the same time series twice: once in its original form and once lagged one or more time periods. 

For example, if it’s rainy today, the data suggests that it’s more likely to rain tomorrow than if it’s clear today. When it comes to investing, a stock might have a strong positive autocorrelation of returns, suggesting that if it’s “up” today, it’s more likely to be up tomorrow, too.

Naturally, autocorrelation can be a useful tool for traders to utilize; particularly for technical analysts.

Understanding Autocorrelation

Autocorrelation can also be referred to as lagged correlation or serial correlation, as it measures the relationship between a variable’s current value and its past values.

As a very simple example, take a look at the five percentage values in the chart below. We are comparing them to the column on the right, which contains the same set of values, just moved up one row.