With the April 18 filing deadline right around the corner for most individual federal income tax returns, you may be hard at work getting ready to file your return or reviewing a return done by your tax preparer. As you're doing this, you'll want to keep in mind the tax changes that applied for 2021…and how they should be reported on your return. You'll also want to make certain that you're taking all the tax breaks you are entitled to. One of the most significant changes for 2021 was to the child tax credit, which is claimed by tens of millions of parents every year.
The child tax credit for the 2021 tax year is bigger and better than the 2020 credit. The credit amount was significantly increased, and the IRS made monthly advance payments to millions of qualifying families from July through December 2021.
The 2021 child tax credit changes are complicated and don't help everyone. For instance, there are two ways in which the credit can be reduced for upper-income families. That means some parents don't qualify for a larger credit and, as before, some won't receive any credit at all. More children qualify for the credit on 2021 returns. And, this year, when you file your 2021 tax return, you'll have to reconcile the advance payments you received with the actual child tax credit you're entitled to claim.
It's all enough to make your head spin. But don't worry – we have answers to a lot of the questions parents are asking about the 2021 child credit, including how to report the credit and any advance payments they got on their 2021 return. Once you read through the FAQs below, you should feel more at ease about the credit and filling out and reviewing your Form 1040 (opens in new tab).
2020 Child Tax Credit
Question: What were the rules for the 2020 child tax credit?
Answer: For 2020 tax returns that individuals filed last year, the child tax credit was worth $2,000 per kid under the age of 17 claimed as a dependent on your return. The child had to be related to you and generally live with you for at least six months during the year. He or she also had to be a citizen, national or resident alien of the United States and have a Social Security number. You had to put the child's name, date of birth and SSN on the return, too.
The credit began to phase out if your modified adjusted gross income (AGI) was above $400,000 on a joint return, or over $200,000 on a single or head-of-household return. Once you reached the $400,000 or $200,000 modified AGI threshold, the credit amount was reduced by $50 for each $1,000 (or fraction thereof) of AGI over the applicable threshold amount. Modified AGI was the AGI shown on Line 11 of your 2020 Form 1040, plus the foreign earned income exclusion, foreign housing exclusion, and amounts excluded from gross income because they were received from sources in Puerto Rico or American Samoa.
Up to $1,400 of the child credit was refundable for some lower-income individuals with children. However, you also had to have at least $2,500 of earned income to get a refund.
Changes Made for 2021
Question: What changes were made to the child tax credit for 2021?
Answer: The American Rescue Plan Act of 2021 temporarily expanded the child tax credit for 2021 only. First, the law allowed 17-year-old children to qualify for the credit. Second, it increased the credit to $3,000 per child ($3,600 per child under age 6) for many families. Third, it made the credit fully refundable for families who lived in the U.S. for more than six months during 2021 and removed the $2,500 earnings floor. Fourth, it required half of the credit to be paid in advance by having the IRS send monthly payments to families from July 2021 to December 2021.
Note that the other general rules for child-tax-credit eligibility continue to apply. For instance, the child still must be a U.S. citizen, national or resident alien and have a Social Security number. You also must claim him or her as a dependent on your 2021 tax return, and the child must be related to you and generally live with you for at least six months during the year. And you still have to put the child's name, date of birth and SSN on the return.
Qualifying for the Higher Credit Amount
Question: Can all families claim the higher per-child tax credit of $3,000 or $3,600 on 2021 returns?
Answer: No, not all families with children get the higher child tax credit for 2021, but most do. The enhanced tax break begins to phase out at modified AGIs of $75,000 on single returns, $112,500 on head-of-household returns and $150,000 on joint returns. The amount of the credit is reduced by $50 for each $1,000 (or fraction thereof) of modified AGI over the applicable threshold amount. Note that this phaseout is limited to the $1,000 or $1,600 temporary increased credit for 2021 and not to the $2,000 credit.
For example, if a married couple has one child who is four years old, files a joint return, and has a modified AGI of $160,000 for 2021, they don't get the full $3,600 enhanced credit. Instead, since their modified AGI is $10,000 above the phase-out threshold for joint filers ($150,000), their credit is reduced by $500 ($50 x 10) – resulting in a final 2021 credit of $3,100.
And remember, many families who aren't eligible for the higher child tax credit may still claim the $2,000 per-child credit when they file their 2021 tax return.
Question: If my 2021 income is higher than the thresholds for taking the $3,000 or $3,600 per-child tax credit, can I still claim the $2,000-per-child credit on my 2021 return?
Answer: It depends. Families who aren't eligible for the $3,000 or $3,600 credit in 2021, but who have modified AGIs at or below $400,000 on joint returns or $200,000 on other returns, can claim on their 2021 returns the regular credit of $2,000 per child, less the amount of any advance payments they get. Families with modified AGIs above the $400,000/$200,000 thresholds will see the $2,000 per-child credit reduced by $50 for each $1,000 (or fraction thereof) of modified AGI over those thresholds.
For example, a married couple with a seven-year-old son who file a joint return and have modified AGI of $415,000 for 2021 won't get the full $3,000 enhanced credit. First, because of their high income, they don't qualify for the extra $1,000 (see question above), so their credit is reduced to the regular amount of $2,000. Then, since their modified AGI is $15,000 above the second phase-out threshold for joint filers ($400,000), their credit is reduced again by $750 ($50 x 15) – resulting in a final 2021 credit of $1,250.
Question: What does it mean that the child tax credit is fully refundable for 2021?
Answer: For the 2021 tax year, the expanded child tax credit is fully refundable for families who live in the United States for more than one half of the year. Before this change, certain low-income people could only get up to $1,400 per child as a refund, instead of the full $2,000 child credit, if their child credit exceeded the taxes they otherwise owed. Under the rules for 2021, people who qualify for a child tax credit can receive the full credit as a refund, even if they have no tax liability.
Parents don't need to be employed or otherwise have earnings to claim the child credit for 2021. Prior-year rules limited the credit to families having at least $2,500 of earned income. For 2021, families with no earned income can take the child credit if they meet all the other rules.
Question: Who got the advance payments and how much did a family get?
Answer: The advance payments generally accounted for half of a family's 2021 child tax credit. In 2021, the IRS sent out six monthly payments from mid-July through December to eligible families who didn't opt out of the payments. The IRS generally based eligibility for the credit and advance payments, and calculated the amount of the payment, based on your 2020 return. The IRS also set forth procedures for families who weren't otherwise required to file a tax return in 2020 to get advance payments.
The amount a family received each month varied based on the number of children in the family, the ages of the kids, the amount of the family's adjusted gross income and when they started receiving payments. For example, families who qualified for the full $3,000 ($3,600 for children under age 6) credit per child got monthly payments of $250 per child ($300 per child under age 6) for six months if they started receiving payments in July. Families with higher incomes who qualified for the $2,000 credit and started receiving payments in July got monthly payments of $167 per child for six months. (Yes, 2021 advance payments went to all families who were eligible for the child tax credit, and not just to those who qualified for the $3,000 or $3,600 per-child higher credit).
To see how much you should have received each month from July to December, use our 2021 Child Tax Credit Calculator.
Question: Can I take the higher child tax credit on my return for my daughter who turned 17 in 2021?
Answer: Yes. If you meet all the other rules for taking the child tax credit, you can claim the credit for your daughter when you file your 2021 Form 1040 (opens in new tab). The age for children qualifying for the credit for 2021 is 17 and under (a change from 2020's requirement of 16 and under). So, 17-year-olds qualify as eligible children for the child credit for 2021.
New Babies in 2021
Question: What if I had a baby last year? How do I calculate the child tax credit on my 2021 return?
Answer: Because the IRS does not know about the baby, you would not have received advance payments with respect to this child. But you'll be able to account for your child when you file your 2021 tax return. Provided you are otherwise eligible to take the child credit, you can take a child tax credit of up to $3,600 for your baby on your 2021 Form 1040 (opens in new tab).
Not Required to File Tax Returns
Question: I generally do not file tax returns because my income is below the threshold required to file. Should I file anyway for 2021 to claim the child tax credit?
Answer: Yes. Remember that the 2021 child tax credit is fully refundable for families who live in the United States for more than one half of the year. That means under the rules for the 2021 tax year, people who qualify for the child tax credit can receive the full credit as a refund, even if they have no tax liability.
You don't need to be employed or otherwise have earnings to claim the credit on your 2021 return and get a refund sent to you. Just fill out Form 1040 (opens in new tab) and Schedule 8812 (opens in new tab), reconcile the child credit you're entitled to with any monthly child credit payments you received last year, and have the excess credit refunded to you.
Families who received advance payments of the child tax credit last year must file a 2021 tax return to compare the payments you received with the amount of the child tax credit you can properly claim on your 2021 return.
Shared Custody of Children
Question: My ex-husband and I share custody of our 12-year-old child. We have an agreement that my husband claims the child tax credit in even years, and I get it in odd years. Can I claim the full child tax credit on my 2021 return even if my husband received monthly payments last year?
Answer: Yes. The IRS looked at 2020 tax returns to determine who was eligible for monthly child tax credit payments in 2021. Since your ex-husband claimed your child for 2020 (an even year), he is the one who likely received the child tax credit payments last year. Your husband should have used the IRS's Child Tax Credit Update Portal (opens in new tab) to unenroll from payments so that he won't have to repay any amount back when he files his 2021 return. But no matter whether your ex-husband did that does not impact your ability to claim the full amount of the child tax credit when you file your 2021 tax return.
Social Security Numbers for Children
Question: My child doesn't have a social security number. Can I claim the child credit?
Answer: No. Only children with Social Security numbers qualify for the child credit. You must put your child's name, date of birth and Social Security number on your 2021 Form 1040 (opens in new tab).
Although children must have Social Security numbers, you can have either a Social Security number or an individual taxpayer identification number.
IRS Letter 6419 on Monthly Payments
Question: I don't remember the amount of advance child tax credit payments I got in 2021. Will IRS send me a letter letting me know how much I received?
Answer: Yes. You should have received Letter 6419 in the mail from the IRS. This notice includes the total amount of advance child tax credit payments you received in 2021 and the number of qualifying children that the IRS used to calculate the advance payments. If you filed a joint return with your spouse last year, then both of you should have received Letter 6419 listing one-half of the payments. That means joint filers will have to combine the amounts on the two letters when they file their return. Make sure you keep this letter with your tax records to help you fill out your 2021 return. If you use a paid preparer, give the letter to the preparer.
The IRS warns that if the amount of advance child tax payments you report on IRS Schedule 8812 (opens in new tab) doesn't match the figures reported on Letter 6419, then the processing of your return will be delayed. That means any refund you are entitled to will also be delayed.
If you didn't receive Letter 6419, you can check your IRS online account (opens in new tab) on the tax agency's website. Once you have gone through all the steps to create an account (if you haven't already done so) and log on, you will be able to verify the amount of child tax credit payments you received for 2021. Alternatively, you can call the IRS at 800-908-4184 to get the information needed before completing Schedule 8812.
Incorrect IRS Letter 6419
Question: I received Letter 6419, but it has a different amount than what I remember actually receiving. What should I do?
Answer: If you filed a joint return, then you and your spouse should have each received Letter 6419 reporting half the payments. If this is the case for you, add the payments together and see if the total matches what your records say you received. If it doesn't match, or if you're not married, check the figures with what's reported on your IRS online account (opens in new tab) (you'll have to set one up if you don't already have an account). Be sure to use the online account figure if it's different than what's shown in Letter 6419. If you still have questions and believe the IRS reported the advance payments in error, you can call the IRS at 800-908-4184.
Taxation of Advance Payments
Question: Do I have to pay tax on the monthly payments I got last year?
Answer: No. Any payments that you received are advance payments of the 2021 child tax credit, so they are not taxable. On your 2021 Form 1040 (opens in new tab), you will use IRS Schedule 8812 (opens in new tab) to reconcile the monthly payments that you received from the IRS in 2021 with the child tax credit that you are actually entitled to.
Didn't Receive Child Tax Credit Payments
Question: I didn't receive any advance child tax credit payments last year. Can I claim the credit on my 2021 tax return?
Answer: Yes. Eligible families who didn't receive any advance child tax credit payments can claim the full amount of the child tax credit on their 2021 federal tax return. You must use Schedule 8812 (opens in new tab) to figure your total child credit and then transfer the amount on line 14i of the 8812 to line 28 of the Form 1040 (opens in new tab). Remember to attach Schedule 8812 to your return.
Reconciliation of Advance Payments With Child Tax Credit
Question: How do I reconcile the advance payments I got with the actual child tax credit I am entitled to when I file my 2021 return?
Answer: When you fill out your 2021 Form 1040 (opens in new tab), you will compare the total amount of advance child tax credit payments that you received in 2021 with the amount of the actual child tax credit that you can claim on your 2021 return. Letter 6419 that you received from the IRS can help you with this calculation. (Remember that if you're married and file a joint return, you and your spouse should have each received Letter 6419. Add the amounts shown in both Letters to come up with the total amount of advance child tax credit payments that you got in 2021.) You would use Schedule 8812 (opens in new tab) to figure your total child credit and to reconcile that credit with the amount of payments you received.
For most people, the amount of the credit should exceed the payments you receive. If this is the case, you can claim the excess credit on your 2021 Form 1040. After filling out Schedule 8812, you would transfer the amount on line 14i of the 8812 to line 28 of the Form 1040.
To illustrate, take a family of five with three children ages 12, 7 and 5. Assume the family qualifies for the higher child credit and received $800 in advance payments per month from the IRS from July through December, for a total of $4,800. The parents will fill out Schedule 8812, calculate a total child tax credit of $9,600, reflect the $4,800 payments they received on line 14f, claim the additional $4,800 on line 14i and transfer that $4,800 excess credit to line 28 of the Form 1040 as a refundable child credit.
Now assume that same family with three children qualifies for the $2,000 per-child credit and received $500 in advance payments per month from July through December, for a total of $3,000. The parents will fill out Schedule 8812, calculate a total child tax credit of $6,000, reflect the $3,000 payments they received on line 14f, claim the additional $3,000 on line 14i and transfer that $3,000 excess credit to line 28 of the Form 1040 as a refundable child credit.
If the credit amount is less than the payments you received, you may or may not have to pay the excess back. After filling out Parts I-A and I-B of Schedule 8812, you'll have to complete Part III to figure whether you have to pay any amount back.
Paying Back Overpayments
Question: Do overpayments of the child credit need to be paid back?
Answer: It depends. With advance payments of the child tax credit, there will surely be instances in which families received more in advance child tax credit payments from the IRS than they are otherwise entitled to. And the American Rescue Plan contemplated this by providing a "safe harbor" for lower- and moderate-income taxpayers.
Families with 2021 modified AGIs at or below $40,000 on a single return, $50,000 on a head-of-household return and $60,000 on a joint return won't have to repay any credit overpayments that they got. On the other hand, families with 2021 modified AGIs of at least $80,000 on a single return, $100,000 on a head-of-household return and $120,000 on a joint return will need to repay the entire amount of any overpayment when they file their 2021 tax return. Families with 2021 modified AGIs between the thresholds stated above need to repay only a portion of the overpayment.
You use Part III of Schedule 8812 (opens in new tab) to figure how much, if any, of the excess payments you'll have to pay back and report the amount on line 19 of Schedule 2 (opens in new tab) of the Form 1040 as an additional tax.
For more details on the repayment amount, see Will You Have to Repay Your Child Tax Credit Payments?
Offset for Back Taxes or Child Support Arrears
Question: Will tax refunds applicable to the child credit be reduced for taxpayers who owe back taxes or child support?
Answer: Yes. The IRS can use the refund to offset past due federal taxes, state income taxes and other federal or state debts. The same goes for people who are behind on child support payments. For example, if your actual child credit claimed on your 2021 return exceeds the monthly payments you received last year, the difference may be refundable but can also be offset by back taxes, past due child support, etc.
Note that different rules applied to advance monthly payments of the child credit. The IRS wasn't allowed to take those payments to offset past-due federal taxes, state income taxes, other federal or state debts or past-due child support payments.
Question: Will claiming the child tax credit on my 2021 return cause my refund to be delayed?
Answer: It depends. We expect that, similar to last year, many return filers will be waiting months for their refunds. That's because the IRS is understaffed and continues to deal with COVID issues. The agency also has millions of unprocessed 2020 returns that it still needs to work on. Claiming the higher child tax credit on your 2021 return in and of itself shouldn't lead to IRS processing delays. However, if the amount of child credit advance payments that you report on your 1040 is different than what is in the IRS's records, or if your child credit reconciliation calculations are inaccurate, then the IRS warns that your refund could be delayed.
Post-2021 Child Tax Credit
Question: What happens to the higher child tax credit and advance payments after 2021?
Answer: The enhanced child tax credit was temporary…applying only for 2021. All the 2021 enhancements to the credit expired on December 31, 2021, including the monthly payments, higher credit amount, letting 17-year-olds qualify and full refundability. Congressional Democrats want to see the expansions extended, touting the impact that a higher and fully refundable child tax credit would have on reducing child poverty in the United States. But as we get later into 2022, and with all of the discord on Capitol Hill, extending the 2021 expansions to 2022 and subsequent years is becoming more unlikely.
Joy is an experienced CPA and tax attorney with an L.L.M. in Taxation from New York University School of Law. After many years working for big law and accounting firms, Joy saw the light and now puts her education, legal experience and in-depth knowledge of federal tax law to use writing for Kiplinger. She writes and edits The Kiplinger Tax Letter and contributes federal tax and retirement stories to kiplinger.com and Kiplinger’s Retirement Report. Her articles have been picked up by the Washington Post and other media outlets. Joy has also appeared as a tax expert in newspapers, on television and on radio discussing federal tax developments.
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