With the kickoff of the 2021 tax season, many taxpayers are gathering their information and trying to determine how recent legislative changes may apply to them when filing their 1040. One of these changes was to the Child Tax Credit. Under the American Rescue Plan of 2021, the Child Tax Credit was increased and allowed for advanced payments during the year.
The following is an informative Q&A on the Child Tax Credit and how this may impact your 2021 tax return filing.
What is the Child Tax Credit?
The Child Tax Credit is a credit taxpayers receive for each qualifying dependent child. For tax year 2020, eligible taxpayers received a credit of $2,000 per child.
How did the American Rescue Plan Act of 2021 change the credit?
The Child Tax Credit increased from $2,000 per qualifying child to:
- $3,600 for each child under age 6
- $3,000 for each child ages 6 to 17
Additionally, the Child Credit rolled out a new feature of advanced payments. From July 2021-December 2021, taxpayers had the opportunity to receive direct advance payments of their Child Credits. These payments were in the amounts of $250 or $300, depending on the age of the qualifying child.
Am I eligible to receive this credit?
Parents or guardians with a qualifying child who stayed with them for more than 6 months can receive this credit. There are certain income exclusions like in the past:
- Married Filing Joint – $150,000
- Head of Household – $112,500
- Single – $75,000
If I receive advanced payments, what do I do when it is time to file taxes?
Let your accountant know that you received advance payments.
The IRS will be sending you a Letter 6419 in the mail. This letter will reconcile and list the total amount of Child Tax Credit payments you received during 2021. Send a copy of this letter to your accountant so they can reconcile your payments received.
The 6419 is an important form as your return can be delayed if you report an incorrect amount of credit. What happens if I don’t want to wait for the Form 6419 in the mail?
You can create an online account to get your advance payment totals for the 2021 child tax credit.
So now that I received advance payments, do I pick up the full $3,600 credit on my tax return? (Assuming 1 child)
If you did not receive advance payments, then, dependent on your income, you might be eligible to receive the full $3,600 credit. If you did receive advance payments, your accountant would reconcile the difference of the advance payments received that is listed on Form 6419 (or from your online account) and what you may be eligible to take on your return.
What happens if I receive advance payments from the IRS and they are greater than the Child Tax Credit amount I am allowed on my 2021 tax return?
If you received advance child tax credit payments during 2021, but the amount of the credits you are eligible for on your 2021 tax return is less than what you received, you may owe an additional tax. However, you may not owe the additional tax, or you may owe a reduced tax amount if you qualify for repayment protection. Your accountant will determine what, if any, additional tax is due by completing Schedule 8812.