The American Rescue Plan Act (ARPA) expanded the child tax credit for the tax year 2021 to help ease the financial burden on families caused by the pandemic. In 2021, the child tax credit amount increased. In addition, the age limit of a qualifying child increased to 17. It also made the tax credit fully refundable and provided monthly advance payments for a portion of the credit. To receive the full credit, you must file your 2021 tax return. Below we have included some frequently asked questions about the child tax credit.
Who is eligible for the 2021 tax credit?
Families with a qualifying child living in the US for more than half of the year can claim this tax credit. They must also meet specific income eligibility requirements to claim full or partial credit. The qualifying child must be:
- claimed on your tax return
- age 17 years-old or younger
- lived with you at least 6 months out of the year
- have a social security number
- be a united states citizen or resident alien
- does not provide more than one-half of their support during 2021.
- a son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of any of them (for example, a grandchild, niece, or nephew).
How much is the expanded child tax credit for 2021?
In 2021 the child tax credit was increased from $2,000 to:
- $3,600 for each qualifying child under the age of 6 ($1,600 increase)
- $3,000 for each qualifying child ages 6 to 17 ($1,000 increase)
What part of the 2021 child tax credit was paid in advance?
The IRS paid half of the estimated child tax credit in six advance monthly payments disbursed from July through December 2021. Advance payments were:
- $300 a month for each qualifying child 5 years old or younger
- $250 a month for each qualifying child from ages 6-17
The other half of the credit must be claimed by filing a Schedule 8812 with your 2021 tax return.
How were my advanced monthly payments determined?
The IRS used your 2019 or 2020 income tax return information to estimate your 2021 child tax credit. Based on this estimate, the IRS determined your advance monthly payment.
Can the child tax credit be reduced based on my 2021 income?
Yes, it can. The 2021 child tax credit depends on your 2021 adjusted modified income (AGI). The credit begins to gradually phase-out for people with income above a certain amount.
The first phase-out reduces the child tax credit to $2,000. It can only phase out the $1,600 increase for qualifying children 5 and under, and the $1,000 increase for qualifying children 6-17. The credit is reduced by $50 for each $1,000 of AGI that exceeds the income threshold of :
- $150,000 for married filing joint filers
- $112,500 for head of household filers
- $75,000 for single and married filing separately fillers
The second phase-out reduces the remaining child tax credit of $2000. As in the first phase out the credit is also reduced by $50 for each $1,000 of AGI that exceeds the income threshold of:
- $400.000 for married filing joint filers
- $200,000 for all other filing statuses
Do I need to reconcile my advance child tax credit payments with my 2021 child tax credit?
Yes, since the advance payments were based on your 2019 or 2020 tax return it is possible that you received more or less than you were eligible for. If you received less than you are eligible for, you could claim the rest on your 2021 tax return. If you received more than what you were eligible for you may have to repay the IRS. However, you may qualify for either full or partial repayment protection.
The following individuals do not qualify for repayment protection:
- Married filing joint filers with income of $120,000 or more
- Single individuals filing Head of household with an income of $100,000 or more
- All other filing statuses with an income of $80,000 or more
How do I reconcile my advance child tax credit payments?
Reconcile your advance child tax credit payment with your 2021 tax credit by comparing both figures.
How do I check the total amount of advance payments given to me?
The IRS is sending out the letter 6419, 2021 advance CTC to help individuals reconcile their advance payments on their tax returns. The letter will show the total amount of advance payments received, and the number of qualifying children used to calculate the advance payment. You can also view your advance payments on the IRS Child Tax Credit Portal.
Married parents filing a joint return will receive separate 6419 letters. The amount in each letter is half of the payment received in advance. The amounts must be added to provide the total amount of their advance payments on their joint tax return using Schedule 8812.
Partner with a Trusted Tax Accountant at Eco-Tax
Preparing for taxes can be a lot of work, sometimes taking away from time spent growing your business. That is why we at Eco-Tax are here to help you!
To learn more about how we can help you, contact us today to book a free consultation with one of our trusted advisors. We look forward to partnering with you!