What Does the New Child Tax Credit Mean and How to Claim It
The new, expanded Child Tax Credit (CTC) of 2021 was part of President Joe Biden's American Rescue Plan. This tax break was one of the measures aimed at helping struggling families during the pandemic.
The expansion increased the tax credit for child dependents by almost double. In addition, families could opt to receive up to half of the payment amount in advance, in six monthly payments of up to $300 per qualifying child.
The expanded child tax credit and advance monthly payments had a dramatic effect on families, cutting food insufficiency by a quarter, and reducing child poverty. It may even have helped your family.
But the new credit may now affect the way you file your federal income tax return for the 2021 filing season.
How?
We're glad you asked.
The Expanded Child Tax Credit, Explained
On March 11, 2021, President Biden signed the American Rescue Plan Act into law. This act changed things in a number of ways.
Increased Child Tax Credit Amount
The most important provision of the expanded CTC was doubling the amount of money that families could claim per child on their 2021 tax return.
Before this amount was increased, the child tax credit was $1,800 per child under six, and $1,500 per child between ages six and 16.
For the 2021 income tax filing season, families can now claim $3,600 credit per child under six, and $3,000 per child ages six to 17.
Provided for Advance Monthly Payments
Instead of having to wait for their tax refund, families were able to opt to receive up to $300 per child per month for six months before filing their 2021 tax return.
Expanded Eligibility
Before the American Rescue Plan Act, families could claim the child tax credit for children 16 and under. The Act expanded eligibility to include children age 17 and under.
In addition, payments were available for all legal guardians, including grandparents, aunts and uncles, foster parents, and others.
Made Child Tax Credit Payments Refundable (Non-Taxable)
The Act also made child tax credit payments refundable. That is, families do not have to claim advance payments as income on their 2021 tax return.
A Temporary Solution
The child tax credit has been a feature of the tax code since 1997.
However, like the stimulus check, the expanded child tax credit was a temporary measure. Unless Congress votes to renew the expansion, the child tax credit will phase out and return to the original pre-2021 level for the 2022 filing season.
How Much is the New Income Tax Credit for the 2021 Tax Year?
The new credit amount is up to $3,600 per child age six or under, or up to $3,000 per child between six and 17.
In 2021, filers could opt to receive half of the credit in advance child tax credit payments of up to $300 per child per month for six months, and receive the rest of the credit amount after filing their 2021 income tax return.
After filling their income tax return, taxpayers who received advance monthly payments may receive a credit of up to $1,800 for every child under six, or up to $1,500 per child age six to 17.
Families who opted out of advance monthly child tax credit payments could receive up to $3,600 per child age six or under, or up to $3,000 per child between six and seventeen, after filing their tax return.
Who Qualifies for the 2021 Child Tax Credit?
The American Rescue Plan Act expanded the categories of people who can both claim the credit, and qualify as a dependent.
Qualifying Filers
Parents and guardians of qualifying children are eligible to claim the new child tax credit. These may include:
- Parents
- Grandparents
- Aunts and uncles
- Legal guardians
And others.
Qualifying Dependents
To qualify for the expanded 2021 child tax credit, qualifying children must:
- Not have turned 18 before January 1, 2022
- Be the filer's child, adopted child, step child, foster child, sibling, step-sibling, half-sibling, or a descendent of any of the above
- Have lived with the filer for more than half of 2021
- Not have paid more than half of their own expenses
- Be a U.S. citizen, U.S. national, or U.S. resident alien
What About Children Added During 2021?
Children born or adopted during 2021 did not qualify for advance monthly payments, as payments were determined by taxpayers' 2019 or 2020 tax return.
However, if you added children to your family in 2021, you may be eligible to claim the full credit amount when you file your 2021 tax return.
What About Dependents Over Age 18?
Dependent children over 18, or who do not have the required social security number, may qualify for a different tax credit as "other dependents."
Is There an Upper Income Limit?
Yes.
To receive the full credit amount, eligible families must not have made more than:
- $150,000 for married people filing a joint return
- $112,500 for a family with a single parent head of household
- $75,000 for a single filer or a person who is married and filing separately
Taxpayers who make above the maximum allowable amount for their filing category may be entitled to a smaller credit amount.
How Can I Take Advantage of the New Child Tax Credit?
It's too late to sign up for advance monthly payments. However, if you haven't yet filed your 2021 tax return, you may be able to claim the credit on your return and receive it with your tax refund.
Toward that end, there are a few important steps to take.
Keep Track of Letter 6419
In January of 2022, the IRS sent out a document to taxpayers called Letter 6419. This document will tell you how much money you're entitled to from the child tax credit.
Hang onto this letter, because you'll need this information to claim the credit on your tax return.
Make sure that the information is accurate, because if it's not, this could delay your tax refund.
Create Your Online IRS Account
You don't have to have an online IRS account to file your taxes, but it can be very convenient. Here are a few of the things you can use it for.
Viewing information such as:
- Information about your last tax return
- Your adjusted gross income (AGI)
- Your past five years of payment history
- How much you currently owe in taxes
- How much you've been paid in economic impact payments
- How much you've received from advance child tax credit payments
- IRS notices
And more.
Signing up can take half an hour or so, so set aside some time so you're not rushed. In addition, having these things handy can help the process to move along faster.
- Your mailing address
- A valid email address
- Your ID, that is, your US passport, passport card or state driver's license
- Your Social Security number (SSN) or Tax Identification Number (TIN)
- A mobile phone registered to you (this is where they'll send the activation code)
What if you don't have a mobile phone? Or if you don't want to connect yours to your IRS account?
Don't worry.
You'll be able to request an activation code through the mail. It will take around ten days to arrive, and will be valid for 30 days.
So head over to IRS.gov to create your account, if you haven't already.
Access the IRS Child Tax Credit Update Portal
The IRS Child Tax Credit Update Portal is an information portal where you can view information about your family's child tax credit status, including:
- Your eligibility
- Payments you've received
- Your bank account information
- Your mailing address
And so forth.
You can also use it to update the IRS about changes that may affect your family's eligibility and / or filing status.
Other FAQs
Tax filing is complicated. Have questions? We have answers.
Are Monthly Payments Taxable?
No.
Monthly child tax credit payments are not taxable.
However, if, when you fill out Schedule 8812 when filing your 2021 tax return, it turns out that you received more than you were entitled to, you may have to pay back the excess amount.
This may have happened if your eligibility changed during the tax year.
What is Overpayment Protection?
Some people who opted to receive monthly payments may have received more than their family qualifies for. In this case, you may have to repay the excess amount as part of your tax bill.
However, you may qualify for overpayment protection (repayment protection) of up to $2,000, if:
- Your main home is is the United States, and
- Your adjusted gross income (AGI) is below
- $60,000 for married couples filing a joint return or if filing as a qualifying widow or widower
- $50,000 if you are filing as head of household; and
- $40,000 if you are a single filer or are married and filing separately
How Do I Know if I've Been Overpaid?
Remember Letter 6419?
For families receiving advance child tax credit payments, Letter 6419 explains how much credit the family is entitled to, and how that calculation was made.
You can also go to the Child Tax Credit Update Portal to see the details of your family's eligibility, the total amount of payments to your family, and more.
If Your Status or Information Changes
If you need to update your filing status, direct deposit or bank account information, or you want to unenroll from the program, you can do all of these things at the IRS Child Tax Credit Update Portal.
Does My Tax Software Know About the CTC?
Yes.
If you're using tax preparation software, it has been updated for the 2021 tax season, including information about the expanded child tax credit.
What's Next for 2022?
Extending the expanded child tax credit and advance monthly payments was part of President Joe Biden's proposed Build Back Better Bill. Unfortunately, the bill has stalled in Congress.
In the meantime, the expanded child tax credit and advance monthly payments system have expired.
This means that next year, in 2022, the child tax credit amount will return to pre-2021 levels, that is, up to $1,800 per child for children under six years of age, and up to $1,500 per qualifying child for children aged six to 17.
This also means that families will once again have to wait for their tax refund to see the money.
Do You Still Have Questions?
If you still have questions about the Child Tax Credit in general, the Expanded Child Tax Credit for 2021, or tax filing in general, there is help available.
VITA and TCE
The IRS has two free programs to help qualifying populations with their taxes: Volunteer Income Tax Assistance (VITA) and
VITA helps individuals earning $55,000 or less per year, individuals with disabilities, seniors, and taxpayers with limited English.
TCE offers assistance to taxpayers aged 60 and older, focussing on questions regarding pensions and retirement related issues.
All VITA and TCE volunteers who prepare tax returns must pass exams in tax law and complete training that meets or exceeds IRS standards. In addition, the IRS reviews every return for quality and accuracy before it is filed.
To find your local VITA or TCE site, use the IRS's handy service locator.
AARP
The AARP (American Association of Retired Persons) can also help with your tax preparation. They offer in-person and online services, and can file your taxes for you, or help you to file them yourself.
Interactive Tax Assistant
The IRS has an online interactive tax assistant that can help to to determine the answers to questions such as:
- Whether you have to file a tax return
- Your filing status
- Whether you can claim a dependent
- If a given type of income is taxable
- Whether you're eligible to claim a credit
- If you can deduct certain expenses
And more.
Are You Ready to File?
Filing your federal income tax can be daunting. But don't miss out on the tax benefits to which your family is entitled.
Learn your family's status, file your 2021 return, and, if you run into problems, consider seeking professional tax advice.
