Question about the new (2018) Child Tax Credit and the refundable portion.?
So someone with a high tax liability gets $2000 reduced from their liability. Someone who already has no tax liability would get $1400 added to their refund.
But what about people in between. For example lets say a person has a tax liability of $800 before applying the child tax credit. The CTC would reduce their tax liability to $0. But would their refundable portion be $600 or $1200?
I can see either one being correct, depending how the rule is interpreted.
Interpretation #1 says that since the person is getting refundable credit the value is $1400, they get $800 toward their tax liability, leaving $600 refundable.
Interpretation #2 says that the credit is worth $2000 as long as no more than $1400 is used as refundable, so the first $800 pays the tax liability and the full $1200 worth of unused credit is refundable since the refundable portion is below the $1400 cap.
I originally assumed that #1 would be correct, but when I ran a hypothetical tax scenario on the online calculator for turbo tax (and verified on another software's calculator), it appears to be using interpretation #2.
If possible, I'm curious to see reference to actual IRS website or quotes directly from the new tax law to justify which interpretation is correct.
Thanks in advance.