Photo: Drazen Zigic (Shutterstock)
The child tax credit—a benefit designed to help taxpayers support their families—was greatly expanded for the 2021 tax year by the American Rescue Plan Act. The credit grew from a maximum $2,000 per qualifying dependent to a maximum of $3,600 in 2021. And for the first time, many taxpayers received half of the credit as advance monthly payments from July through December of last year. The downside to all of that upside? How it might impact your taxes when you file them this year.
The monthly child tax credit payments have ended, which means that now, parents need to claim the second half of the credit via tax return. Unfortunately, this process is expected to be confusing for many who need it most, and who may not have received those monthly distributions.
While the monthly pre-payments were sent to many taxpayers who qualified based on their prior tax filings, the historic expansion of the child tax credit means that people who earn very little or nothing—and thus don’t typically file their taxes—are still eligible for the credit, provided they know how to claim it.
Here is an overview of how the child tax credit works this year, according to the IRS’s child tax credit fact sheet ahead of tax filing season. It’s worth reviewing before you file—the IRS has yet to extend the filing deadline beyond April 18, 2022, and the Treasury Department anticipates a “frustrating season” ahead for filers.
What’s different about the child tax credit this year?
Previously, low-income families often did not get the same amount (or even any) of the Child Tax Credit. According to The White House:
The American Rescue Plan increased the Child Tax Credit from $2,000 per child to $3,000 per child for children over the age of six and from $2,000 to $3,600 for children under the age of six, and raised the age limit from 16 to 17. All working families will get the full credit if they make up to $150,000 for a couple or $112,500 for a family with a single parent (also called Head of Household).
These are the biggest takeaways from the changes to the child tax credit in 2021:
Regardless of whether or not you received the initial monthly payments, families with children will have to claim the remaining amount they are due in their 2021 tax filing. The 19th News illustrates it like this: Assuming you received all six monthly payments, you could still claim $1,800 if you have one young child, or $3,300 if you have one young child and one older child.
Who is eligible for the child tax credit?
Nearly every child under the age of 18 before Jan. 1, 2022 qualifies for the child tax credit. Some income limitations apply: For example, only couples making less than $150,000 and single parents making less than $112,500 will qualify for the full 2021 amounts.
The person claiming the child tax credit must be a qualifying taxpayer, and the dependent child must meet tax law requirements. Parents or caregivers can claim a child as long as:
The child has lived with them for at least six months during 2021 (though there are some exceptions, including for kids with divorced or separated parents). They have lived six months or more in the U.S.The child is a U.S. citizen, U.S. national, or U.S. resident alien.Stepchildren, foster children, half siblings, and descendants, including grandchildren and nieces or nephews, may also qualify if the tax filer is their main caretaker.
Additionally, the taxpayer must have a Social Security number or an Individual Taxpayer Identification Number, and the dependent must have a Social Security number, before the due date for the taxpayer’s tax return.
Make sure you check all the boxes as a qualifying taxpayer. Fraudulent claims for Child Tax Credits will render you ineligible to claim such credits for 10 years. Even an improper claim due to “reckless or intentional disregard of rules and regulations” (but not fraud) will mean you’re denied credits for two years.
How is the credit amount determined?
The money is available on a sliding scale, with families earning more money receiving smaller portions of the credit. The credit begins to decrease for individuals who earn $75,000 a year, single parents or heads of households who earn $112,500 a year, and couples who earn $150,000 a year or more. Those who earn beyond these thresholds will see the benefit begin to decrease gradually until it hits $2,000 per child.
How much credit can you get per child?
For the 2021 tax year, the child tax credit offers:
Up to $3,000 per qualifying dependent child 17 or younger on Dec. 31, 2021.Up to $3,600 per qualifying dependent child under 6 on Dec. 31, 2021.According to Nerd Wallet, if you took advantage of the advance payments, the IRS most likely sent half of the credit to you already. If that’s you, you should have already received up to $250 monthly per qualifying dependent under age 17, and $300 monthly per child under 6 years of age.
How to claim the child tax credit on your taxes this year
The monthly payments were only the first half of the total child tax credit your family is entitled to. The second half of the credit will be figured into your 2021 taxes, increasing the mount of your refund or decreasing your taxed owed. All eligible families will have to claim what they are still due (which could be even more than 50 percent if you didn’t receive all of your initial monthly payments).
Keep an eye on your mailbox for Letter 6419, which the IRS should send to your household before the end of January. This letter includes two key piece of information:
The IRS also notes that taxpayers who received advance payments can check amounts using the CTC Update Portal and Online Account on IRS.gov. Eligible families who didn’t receive advance child tax credit payments can claim the full amount of the child tax credit on their 2021 federal tax return. This includes families who don’t normally need to file a tax return (more on that below).
After receiving Letter 6419: You’ll put the total amount of 2021 advance child tax credit payments into a Schedule 8812 (the tax form to apply for credits for qualifying children and dependents) on lines 14f or 15e, depending which applies for you. Those filing a joint return will have to add up the amounts listed in Box 1 of the Letter 6419 they each received in their Schedule 8812.
How the child tax credit affects the rest of your taxes
The child tax credit is fully refundable for the 2021 tax year. Nerd Wallet breaks down what this means depending on your tax filing circumstances. For instance, if you opted out of advance payments, you’ll simply confirm that you’re eligible for the credit and then claim the full amount you’re entitled to based on your 2021 income and number of qualifying dependents.
What if I don’t file taxes?
If you don’t make enough to be required to file taxes, you can still claim the full credit of up to $3,600 per child by filing your taxes anyway.
What if I’m undocumented?
According to The 19th, families that include undocumented persons did not receive the first monthly child tax credit payment in 2021. Most were able to get this payment later in the year, but many families still reported only receiving partial payments or none at all.
If you are undocumented and have children who have Social Security numbers, you qualify for the money on behalf of your children. The child must have had a Social Security number issued before May 17, 2021. A child with an ITIN does not qualify for the credit, but an undocumented parent whose dependent has a Social Security number will need one; the IRS explains how to apply for an ITIN here.
For more information
For answers to more questions, like what to do if you don’t have a bank account or share custody of a child, check out this explainer from The 19th and the IRS’s child tax credit fact sheet.
