advance child tax credit
advance child tax credit

How Advance Child Tax Credit payments will affect your 2021 tax return

The advance monthly payments of the Child Tax Credit ended in 2021, and the IRS has begun sending out letters to taxpayers who received monthly payments that indicate how much each individual received, as well as the number of children on which the credit amount was based. The expanded child tax credit will not continue in 2022 (at least not at the time of this writing). Even though the Child tax credit expansion has ended, parents will still have the opportunity to claim the original credit when they file their 2021 tax return. Below you will find answers to some of the commonly asked questions regarding the Child Tax Credit. 

What is the Child Tax Credit?

The Child Tax Credit was designed to support qualifying families by reducing federal taxes due based upon the number of children or qualifying dependents in the household. The Child Tax Credit was increased and expanded in 2021 as a part of the American Rescue Plan, providing monthly advance payments . The expansion also provided all families with a fully refundable credit, eliminating the minimum income threshold to take advantage of the credit. For families with children under the age of six, the credit amount was $3,600 per child; for children ages 6-17, the credit was $3,000. Upper income limits for the expanded credit (based on 2021 income) were $75,000 for individuals, $112,500 for head of household, and $150,000 for married couples.

Who received monthly Advance Child Tax Credit payments?

Eligible families who did not opt out of the advance payments received six monthly payments, starting July 15, 2021. The IRS calculated payment amounts based on the taxpayer’s 2020 return, taking into account the parents’ income, as well as number and age of the children/eligible dependents. The total credit for the year was divided in half, and that half was divided by six to provide six equal monthly payments. 

How do I account for Child Tax Credit payments on my tax return?

The IRS has begun sending out letters to taxpayers who received advanced monthly payments. The 6419, 2021 advance CTC letters will help taxpayers to reconcile their prepayments on their tax returns and ensure that they receive all of the Child Tax Credit to which they are entitled. The letter will show the total amount of advanced payments, as well as the number of qualifying children used to calculate the advanced payments. It is important to keep the letter with your tax documents to provide to your tax preparer. You can also view your advanced payments in the IRS Child Tax Credit Update Portal.

What if I received payments but was not eligible?

Because the monthly payments were based on your 2020 return, you may have become ineligible for the credit in 2021. Changes such as your filing status, income, child living arrangements, or the age of your children can impact your eligibility for the credit. If you received advance payments for which you were ineligible based on your 2021 information, you may need to pay back some or all of these payments when you file your 2021 tax return. 

If you received advance payments but do not have any qualifying children in 2021, you will need to account for this on your return. Certain taxpayers below set income thresholds may not need to repay their advances.

What if I opted out of the advance monthly payments?

If you opted out of the advanced monthly payments but are eligible to receive some or all of the credit, you will claim it when you file your taxes. At that point, you will take the full year’s credit, rather than the six months that were used as basis for advance payments. 

Will I receive monthly advance Child Tax Credit payments in 2022?

The Child Tax Credit expansion ended in 2021, also ending the monthly payments. However, eligible families can still receive a credit of $2,000 per child when they file their 2022 tax return. Keep in mind that when you file 2021 taxes this spring, you will still be receiving half of the Expanded Child Tax Credit to reduce your tax liability. If you’re expecting a refund, we strongly recommend filing your tax return as early as possible.

For additional questions on how to claim or reconcile the Child Tax Credit, please contact our team. We would be more than happy to answer your questions and help you complete and file your 2021 tax return.

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