Last year President Joe Biden signed the American Rescue Plan which increased the child tax credit (CTC) amount and offered half of the credit through a series of monthly payments. The credit was increased from $2,000 per child to $3,000 per child ages 6-17 and $3,600 per child up to age 5. Taxpayers received half of the credit sent through six monthly payments in 2021 and will see the other half when filing a 2021 tax return. With the last advanced CTC payments sent in December, many taxpayers are now left with lingering questions as to how the CTC will affect them this tax season. Below are a few things taxpayers should know about the CTC as we prepare to enter this tax filing season.
You may qualify for the child tax credit even if you aren’t required to file a return. You may be eligible for the child tax credit even if you generally don’t file a return. Even if you didn’t have an income or made under the income requirement to file, you still may be eligible as long as all other criteria are met. If you didn’t receive the advanced CTC payments in 2021 because you didn’t file, you can still claim the credit when you file a 2021 tax return. Families who don’t traditionally file should visit IRS.gov to see if they qualify.
Advanced payments may affect your refund. Since the advance payments were actually a 50% CTC advance, you will receive the other half when you file your taxes. The thing is, although the credit was increased to a larger amount, you already received half in payments so the half you’ll receive on your taxes may be less than what you’re used to seeing at tax time. This means smaller tax refunds for some because they already were paid the rest.
You may be eligible now even if you weren’t before. Even if you didn’t receive the credit based on your 2020 taxes, if you’re eligible based on your 2021 taxes, you can claim the credit. If you had certain changes your eligibility may have changed. Having a new baby, getting divorced, a change in income or a change of custody are a few things that may affect your eligibility. For instance, a new baby born in 2021 may qualify for the credit while a dependent turning 6 can change the credit amount and a child who turned 18 in 2021 wouldn’t be eligible at all.
The advanced payments aren’t taxable but still need to be reported when you file. The payments aren’t considered income so they won’t be taxed on your return but you still must report the amount of payments received when you file. The IRS is sending Form 6419 which includes advanced amounts paid to recipients. It will be used to calculate payment amounts and state any amounts that you still may be due or any amounts overpaid to you. If you are required to file you will need to have the form handy when you do.
It’s possible you may owe. The IRS estimated your expected 2021 CTC amount based on your 2020 or 2019 taxes or any updates provided by taxpayers in 2021 through the portal like additional income earned. Changes in your situation such as an increase of income, or a child aging out, can change credit amounts causing you to be overpaid and affect your CTC when you file. So if the estimate wasn’t correct and you were overpaid or received a payment that you’re no longer eligible for you may have to pay it back if you don’t qualify for repayment relief.
You can set up an IRS secure account online. By visiting IRS.gov/accounts you can set up a secure online account and login. There, taxpayers can view their latest information, find info from recently filed returns, transcripts, payments and other federal tax account info. You can also access any Economic Impact Payment amounts or advanced CTC payments previously received.
There are IRS tools to help. For more information visit IRS.gov and select the child tax credit link to take you to the CTC page. There you can find out if you qualify using the eligibility assistant, create an IRS account and view payments received through the portal.
Brittany Sabalza is director of tax education and tax columnist at Pro Tax Solutions Indianapolis.