Child Tax Credit – What You Need to Know

Blog updated June 2022

In May of 2022, the IRS issued updated guidance in the Frequently Asked Questions (FAQ) section of the Child Tax Credit. The updates focused on taxpayers who may have continued to receive advance Child Tax Credit payments they were not eligible for any longer.

If your child was no longer eligible for the Child Tax Credit in 2021 and you continued to receive advanced Child Tax Credit payments in 2021, you may have to return the advance payments you were not entitled to back to the IRS.

Here are a few situations where you may have received excess advanced CTC payments that you are not entitled to:

  • A qualifying child who resided with you may have changed homes during 2021 and resided more than half of the 2021 tax year with a different individual.
  • Your income increased in 2021.
  • Your filing status changed for 2021.
  • Your main home was outside of the United States for more than half of 2021.

What should I do if I think my advance payment amount may have been incorrect?

Check your Letter 6417 that the IRS mailed to you before your initial advance CTC payment. This should show your estimated CTC amount for the 2021 year and the amounts of your monthly advanced payments. If you don’t have a copy of the Letter 6417, this information should be listed in your online IRS account. You can login to your account here.

What if the parents of the qualifying child are separated?

Only one parent can claim the qualifying child if the parents are separated and not living in the same home. Parents can agree to alternate years or have one parent fully claim the child for the CTC. If you are claiming the child, the other parent needs to sign Form 8332 release form and it should be attached to your tax return.

Keeping up to date with your 2022 return

The Child Tax Credit reverted back to its set-up before the American Rescue Plan of 2021. This means the eligible age for a qualifying child lowered to 16 again, the credit limit returned to $2,000, and the advance payments program has been discontinued. All credit will be disbursed at the end of the tax year for your 2022 return.

January 2022 update: At the time of this update, advanced payments for the Child Tax Credit have ended. The current administration is working to extend the tax credit as part of the build Back Better Act, but that has yet to happen, as of now. The Treasury Department, however, relaunched an updated version of the ChildTaxCredit.gov site. The site now has features to help families with filing their taxes and accessing the full amount of unpaid credits.

If you are looking for the Advance Child Tax Credit payment information you need to file your 2021 return, that is available now in your online IRS account. The ChildTaxCredit.gov site does not currently have the most updated information.

July 2021 update:

Starting in July of 2021, qualifying families with children ages 17 and under will start receiving monthly child tax credit (CTC) payments from the Internal Revenue Service (IRS). The American Rescue Plan Act (ARPA) expanded the child tax credit when it was signed into law this spring. All the details haven’t been completely worked out, so we will keep this blog post updated as more information is available.

As it stands right now, here are the important points to be aware of:

  • Who Qualifies: The increased amounts are phased out for incomes over $150,000 for married taxpayers filing a joint return and qualifying widows or widowers, $112,500 for heads of household, and $75,000 for all other taxpayers. Taxpayers will still qualify for the standard child tax credit of $2,000 if their adjusted gross incomes and under $400,000 for married and filing jointly or $200,000 for single filers.
  • For tax year 2021, families claiming the child tax credit will receive up to $3,000 per qualifying child between the ages of 6 and 17 at the end of 2021. They will receive $3,600 per qualifying child under age 6 at the end of 2021.
  • ARPA expands the CTC for tax year 2021 ONLY
  • The total of the advance payments that are starting in July will be up to 50 percent of the child tax credit. Advance payments will be estimated from information included in eligible taxpayers’ 2020 tax returns (or their 2019 returns if the 2020 returns are not filed and processed yet) or through information updated through the online portal. (See last bullets for more information on the IRS portal.). If any discrepancies exist, they will be adjusted on the taxpayer’s 2021 return in 2022.
  • Repayment of the credit is possible if taxpayers received more than they are entitled to. ARPA provides a safe harbor for lower and moderate income taxpayers. Families with an adjusted gross income of $40,000 for single filers, $50,000 for head of household, or $60,000 married and filing jointly will not have to repay any credit overpayments. Families with adjusted gross incomes of at least $80,000 for single filers, $100,000 for head of household, or $120,000 for married and filing jointly will need to repay the entire amount of any overpayment when they file their 2021 returns. Families in between these threshold will need to repay a portion of the overpayment.
  • The credit for qualifying children is fully refundable, which means that taxpayers can benefit from the credit even if they don’t have earned income or don’t owe any income taxes.
  • The credit will include children who turn age 17 in 2021. Prior to ARPA, the year a child turned 17 they were not eligible for the credit
  • Taxpayers may receive part of their credit in 2021 before filing their 2021 tax return.
    • The IRS is developing an online portal for taxpayers where they will be able to update income, marital status, and number of dependents. Families with joint custody or those who will have a change in custody can update their information online, ensuring they receive the correct amount of credit. They should base this off who they are claiming for 2021. Those who are having children in 2021 should log on to update this. The portal should be launched by July 1
    • Taxpayers also have the right to opt out of receiving the advancement on the credit
    • The IRS will also send letters to potentially eligible families

We’re Here to Help

Much is changing in the tax world and the team at Corrigan Krause can help. Email info@corrigankrause.com for more information.

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