Parents’ Guide to the Child Tax Credit

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American parents have likely received their last monthly child tax credit payment.

With no agreement to extend these temporary tax credit advance payments until 2022, the December 15 check likely appears to be the last. But there is still money parents can claim this tax season.

As part of federal stimulus in response to the pandemic, the expanded child tax credit increased payments from $ 2,000 to $ 3,600 per eligible child and put more money in parents’ pockets before the tax date. Eligible parents obtained half of the loan in advance payments from July to December 2021.

As part of the US bailout, credit was only extended for one year, and although some lawmakers supported its extension, the bill was blocked in Congress.

Nonetheless, if you qualify for the Expanded Child Tax Credit, you can still expect additional relief when filing taxes. The monthly advance payments were only half of the total credit amount for 2021 – eligible families will receive the second half of the expanded child tax credit after filing the 2021 tax returns. But changes to your income or to other eligibility factors may affect how much you can expect when you file.

Here’s everything you need to know about reporting your advance payments and how to claim the rest of the child tax credit.

What to know before tax season

If you received any advance payments from the Child Tax Credit, your eligibility was based on your last tax return (for most people, that would be your 2020 tax return), as well as the children. eligible children and the ages of the children. If any of your eligibility details change in 2021, that could change the amount you’re eligible for, and you’ll need to account for those changes when you file your taxes this year.

“Basically, you’ll have to do some sort of reconciliation on your tax return,” says Joanne Burke, CFP, financial advisor at Birch Street Financial Advisors in Vienna, Virginia. It all depends on “your income and what you received from these tax credits.”

Before tax season begins, you should receive a letter from the IRS detailing the amount of money you received up-front for child tax credit payments and the number of eligible children you received. the IRS counted to determine the amount to which you are entitled. You, or your tax preparer if you use one, can use this letter to determine how much child tax credit is still owed to you when you file your return.

Pro tip

If you’ve moved this year, be sure to update your address in the Child Tax Credit Update Portal to ensure you receive your letter before the tax date. If you have misplaced your letter, you can also find your information by logging into the portal.

What is the Expanded Child Tax Credit?

The child tax credit is not a new benefit; it has just been temporarily expanded for 2021. Previously, the credit allowed parents to claim up to $ 2,000 per eligible child under 17. For the 2021 taxes, parents can claim up to $ 3,000 for each child between the ages of 6 and 17 and $ 3,600 for the youngest children under 6. But these amounts start to decline once you hit certain thresholds. of income.

Single parents with an Adjusted Gross Income (AGI) greater than $ 75,000, heads of households with an AGI greater than $ 112,500 or married people filing jointly with an AGI greater than $ 150,000 will be phased out in increments of $ 50 for every $ 1,000 over the AGI limit.

How Much Child Tax Credit Payments Will You Get on Your 2021 Tax Return?

If you received advance payments in 2021, those payments were half of the amount you were entitled to based on your last tax return. In general, the remaining amount of the child tax credit that you will claim when you file your 2021 taxes should be the second half.

Since the child tax credit advance payments were based on your most recent tax return, you may need to balance the money you received with what you are actually entitled to depending on your situation. actual in 2021. For example, your reporting status or income may have changed in 2021, or your child has been in another residence for more than half of the year. You may also have chosen to opt out of prepayments, which means that you will instead receive the full amount with your tax return.

Here are a few examples of how changes to your qualifying tax information or choosing to opt out of advance payments could affect the amount of child tax credit remaining owed to you:

  • You have two eligible children under the age of 6 and are eligible for the full credit. You have received all of the child tax credit prepayments and have not undergone any material changes between your 2020 and 2021 return. You should receive $ 3,600 in total, or the remaining $ 1,800 per child.
  • You have a child over 6 years old, but you have refused advance payments. You are also eligible for the full amount based on your income and have not experienced any material change in 2021. You will get the full extended credit of $ 3,000 when you file your return.
  • You have received advance child tax credit payments for a child over age 6, based on your 2020 AGI of $ 75,000 as a lone parent. You have not updated your information in the Update Portal and your actual AGI for 2021 is $ 79,000. Instead of the full $ 3,000, your actual income entitles you to $ 2,800. You have already received $ 1,500 in advance payments, so you are claiming the remaining $ 1,300 on your 2021 tax return.

If you exceed the expanded income thresholds for the child tax credit

Even if you exceed the income thresholds to receive the full extended credit, you may still be eligible for the $ 2,000 credit that applied in previous years.

“It just means that their overall child tax credit would be reduced very slightly,” says Ken Hoyt, CFP, founder of Hoyt Wealth Management in Westford, MA.

Your child tax credit will not be reduced below $ 2,000 per child until your AGI exceeds $ 400,000 for married couples filing jointly, or $ 200,000 for single filers and heads of households, according to the IRS. If your AGI is above these phase-out thresholds, the amount for which you are eligible will be reduced by $ 50 for every $ 1,000 that your income exceeds the threshold.

How to get refund relief from the child tax credit

If you haven’t updated your IRS information to reflect changes to your marital status and you are now eligible for less money than you already received, you may need to reimburse all or part of the IRS, unless you qualify for reimbursement protection. .

The total amount of reimbursement protection is $ 2,000 multiplied by the number of children the IRS initially considered in determining your payment, minus the number of children actually eligible on your 2021 tax return. .

For example, let’s say you had two eligible children on your 2020 tax return and received child tax credit advance payments on that basis, but you will actually only claim one in your income tax return. 2021 income tax return. You can expect reimbursement relief of up to $ 2,000 to cover the only child you did not claim for 2021.

This reimbursement protection amount will be lower if your AGI exceeds certain income limits. The amount is reduced based on how much your AGI exceeds the repayment income threshold. Repayment options reach $ 0 when your income is equal to or greater than the following:

  • $ 120,000 for those married and filing jointly.
  • $ 100,000 for heads of families.
  • $ 80,000 for single filers or those married and filing separately.

If you don’t qualify for refund relief, the amount you owe can be taken from your federal tax refund or added to your taxes owed to cover the balance. You can also work with the IRS to pay off the balance with an installment agreement.

What about parents who did not receive an early payment of the child tax credit?

In the six months that advance payments were sent to eligible parents by the IRS, some payments were missed due to incorrect bank information, wrong address, or ineligible based on their last statement. income (even if they were really eligible).

You can use the Child Tax Credit Update Portal to view your past payments, see if a payment has been sent, and verify your personal information.

If the IRS has not issued a payment owed to you, you can reconcile the amount when you file your 2021 tax return. If the IRS sent a payment that you never received, you can complete the Form 3911 to get help from the IRS to trace the payment.

What you need to know about the 2022 child tax credit

The expanded child tax credit expired at the end of 2021, so from now on, families will not receive any monthly child tax credit advance payments in 2022. This means you will not have more extra money in your account on the 15th of each month. . If you’ve used these payments for child care or other expenses, it may be a good idea to start planning your budget without them.

Even without an extension of the new changes in 2021, eligible parents in 2022 can still receive the original child tax credit when they file in 2023.

This means that for 2022, the amount of the credit will drop to $ 2,000 per eligible child under the age of 17. But without the expanded credit, the child tax credit may again not be fully refundable and require parents to meet a minimum earned income threshold to qualify. .

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