The Child Tax Credit – Updated Guidance
The IRS updated its factsheet regarding the Child Tax Credit again on March 8, 2022.
As part of the American Rescue Plan Act, the Child Tax Credit (“CTC”) was expanded for the 2021 tax year by offering families advance monthly payments of $250 to $300 per child. Also, the total available credit was increased. This increase is allowed using a different Adjusted Gross Income (“AGI”) limit than was used for the 2020 CTC.
In 2020, the maximum amount you could claim for any qualifying child was $2,000. In 2021, this was increased to $3,000 for children ages 6 through 17, with an additional $600 for children ages 5 and under. However, there are two phase outs with respect to the 2021 CTC. Once a single taxpayer’s AGI exceeds $75,000 ($112,500 for head of household, $150,000 for married filing joint) the amount of the $1,000 increased credit, per child, begins reducing to $0. Once that same taxpayer’s AGI exceeds $200,000 ($400,000 for all other filing statuses), then the original $2,000 CTC will begin reducing to $0.
The advance monthly payments issued during the second half of 2021, were based on the taxpayer’s AGI from either the 2020 or 2019 tax filing. If the tax payer’s income significantly changed, there may be a disconnect between the credit allowed and the credit received in advance. They may even be required to pay back the advance monthly payments received.
Because of the advance payments, many taxpayers may be receiving a smaller refund than was expected. The CTC has historically been claimed on the annual income tax return. Although, this remains true, the advance monthly payments from the 2021 CTC creates an additional consideration for this year’s filing. The more a taxpayer received throughout the year, the less credit may be available when filing the 2021 income tax return.
The IRS has acknowledged that amounts reported on Schedule 8812, Credits for Qualifying Children and Other Dependents, may be incorrect. Don’t forget to check your banking records to confirm the correct amounts of advanced credits you received, so that your return is filed accurately.
For more information on the 2021 Child Tax Credit, visit https://www.irs.gov/pub/newsroom/fs-2022-17.pdf
If you have any questions, or if you need assistance, please reach out to your Bronswick Benjamin P.C. trusted advisor. We are here to help!