Child Tax Credit
The Child Tax Credit (CTC) was established in 1997 and was significantly expanded under the American Rescue Plan Act (ARPA) signed into law in April 2021. The newly expanded Child Tax Credits and eligibility are currently only effective for tax year 2021. It is reported there is a provision to continue this expanded CTC program past 2021 in the current version of the Build Back Better Act (BBB) that is currently under negotiation. At the time of this writing, the BBB Act has not been ratified or signed into law.
CHILD TAX CREDITS
ensure you claim your rightful share
For tax year 2021, the CTC amount was increased from $2,000 per qualifying child to:
$3,600 for children aged 5 and under
$3,000 for children aged 6 up to 17.
(Qualifying ages are determined by the children’s age on 31 December 2021)
The 2021 eligibility requirements are as below:
Qualifying Child:
· Meet the definition of child under Pub 972.
· Child lived with you for more than ½ of the year 2021 in a home in the US
· Child is claimed as a dependent on your tax return.
· Child is under the age of 17 on 31st December 2021.
· Child is a US citizen, US national, US resident alien.
· Child must have a Social Security Number (SSN).
Income Thresholds:
In order to claim the CTC in 2021, you must meet the following Modified Adjusted Gross Income thresholds to receive the full CTC amount:
Single or Married Filing Single: $75,000
Head of Household: $112,500
Married Filing Jointly/Qualifying Widower: $150,000
The first phase-out begins to reduce the CTC when your Modified AGI exceeds the thresholds mentioned above. This first phaseout reduces the CTC by $50 for each $1,000 your Modified AGI exceeds the threshold. This first phase out of CTC has a floor of $2,000 per child.
The second phase-out doesn’t begin to reduce the CTC below $2,000 per child until your Modified AGI exceeds $400,000 married filing jointly (MFS) and $200,000 for all other filing statuses.
Advanced CTC Payments:
The IRS/Treasury Dept began making advanced 2021 CTC payments in July of 2021. These advanced payments are a maximum 50% of the estimated Child Tax Credits you will have in 2021. The estimated CTC for 2021 were calculated based on your 2020 return (or 2019 return if 2020 had not been filed or processed). The advance CTC payments are to be made from July through December 2021 and will be automatically sent to your financial institution noted in your last tax return.
CTC Advanced payments are NOT income and will not be reported as such. These advanced payments are subtracted from your final calculated 2021 CTC to determine any remaining credit to claim in your return or amount of advance payments that exceed your calculated 2021 CTC.
Advanced CTC payments are to be netted against your actual calculated Child Tax Credits in your 2021 return. You will receive a Letter 6419 from the IRS in January 2022 that will document the advance CTC payments received. Make sure you retain and provide a copy of Letter 6419 to your 2021 tax return preparer to ensure proper calculation of remaining CTC to claim on your 2021 tax return.
There is a possibility you might owe the IRS if your income and situation changed such that the advanced CTC payments your received are more than your calculated CTC. If this is the case, the amount owed will either (1) reduce your refund or (2) be added to the amount you owe.
This is a general overview of the Child Tax Credit and Advance CTC payments. There are many nuances that might affect your situation (adopted child, foreign earned income to be added to MAGI, etc.). You can refer to the IRS website for more information at www.irs.gov/newsroom/2021-child-tax-credit-and-advance-child-tax-credit-payments-resources-and-guidance You should make your CPA tax preparer aware of any unique situations you might have regarding your eligibility to claim Child Tax Credits.