The child tax credit was expanded significantly in 2021 and many families received payments in advance, but you need to file an income tax return in order to get the full benefit.
The American Rescue Plan Act of 2021 increased the child tax credit from $2,000 to $3,600 for children ages 5 and under, and $3,000 for children ages 6 through 17. To get money into families’ hands faster, the government paid half the credit in advance as monthly payments from July to December 2021. For example, you may have received $300 per month for each child age 5 or younger, and $250 per month for each child from age 6 to 17.
When you file your 2021 taxes, you need to reconcile the amount you received in advance payments with the amount of the credit you qualified for in 2021. Most people will receive the second half of the credit when they file their income tax return — an extra $1,800 for each child age 5 or younger, and $1,500 for each child ages 6 to 17. To qualify for the full credit, your income must have been less than $150,000 for married couples filing jointly, $112,500 if filing as head of household, or $75,000 for single filers or married filing a separate return. The size of the credit starts to phase out at higher income levels.
The advance payouts were based on your last tax return on file (generally 2020) and you may end up receiving less money if your income increased above the phase-out limit in 2021. You may end up getting more money, however, if your income dropped below the limit or you had a baby in 2021 and hadn’t received the advance credits.
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Reconciling the Credit on Your 2021 Tax Return
You should have received IRS Letter 6419 by the end of January, which reports the amount of advance child tax credit you received and the number of qualifying children used to calculate the advance payments. You can also check this information using the IRS’s Child Tax Credit Update Portal. Then use this information to complete Schedule 8812 and figure out how much of the credit you should receive when you file your 2021 tax return.
“Everyone who received advance payments has to file a tax return to reconcile or report the correct amount of advance payments they received, and also claim the rest of the child tax credit they are eligible for,” said Lisa Greene-Lewis, a CPA and tax expert with TurboTax. “If you are eligible for the full amount of the 2021 child tax credit, then the advance payments you received are only a portion of your 2021 child tax credit and you will receive the other portion when you file.”
There are some situations where you may not have received the advance payments but are still eligible for the credit — for example, if you had a baby in 2021. Also, Greene-Lewis explained you may not have received the advance payouts if you usually aren’t required to file a tax return and the IRS didn’t have enough information about you from 2019 or 2020 to issue the monthly payments.
Even if you aren’t required to file an income tax return for 2021 because your income is below the filing threshold, it’s important to file a return this year so you can receive the remaining portion of the child tax credit. “There are some people who are not required to file because they don’t make the IRS income-filing threshold ($12,550 single, $25,100 married filing jointly) or they only have income like Social Security income, but they should file in order to get the child tax credit,” said Greene-Lewis.
She added, “They also may be eligible for some other refundable credits like the earned income tax credit and the recovery rebate credit. A refundable credit means you don’t need to owe any taxes to get them and they can boost your tax refund.”
Child Tax Credit Impact: What the Advance Really Did To Help Families
The payout situation can be complicated for some divorced couples who alternate claiming the child as a dependent. “This can be tricky especially with a divorced couple who claim a child every other year,” said Mary Kay Foss, a CPA in Walnut Creek, Calif. “The payments were based on the 2020 return filed, so for divorced couples, the one claiming the child in 2020 would have received payments in 2021, and the one claiming the child in 2021 might not have received anything.” If you had received the advance credits in 2021 but are not claiming the child for the year, you may need to pay the money back.
For more information, see the IRS’s Advance Child Tax Credit Payments in 2021 Guide and the IRS’s Special Tips for the Advance Child Tax Credit and Filing Your 2021 Return. You may also be able to get help filing a return for free using the IRS’s Free File program if your income was below $73,000 in 2021.
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