Child Tax Credit: Do Your Kids Qualify for the Full $3,600?

The IRS is notifying parents of important changes to the Child Tax Credit that will help families get advance payments this summer.

The IRS will pay half the total credit amount in advance monthly payments beginning July 15.

Parents can claim the other half when filing their 2021 income tax returns. These changes apply to the 2021 tax year only, according to the IRS.

HERE’S WHAT YOU NEED TO KNOW ABOUT THE ADVANCED CHILD TAX CREDIT

• You should file a 2020 tax return. If you haven’t yet filed your 2020 tax return, be sure to do so as soon as possible. The IRS will use your 2020 return to calculate your credit amount. If you’ve already filed your taxes, you don’t need to do anything. The IRS will make payments by direct deposit, paper check, and debit card. You will very likely receive payment the same way you received your stimulus payment.
• The credit amount increased. The credit amount has been increased from $2,000 to $3,600 for children under six and $3,000 for other children under 18.
• Get payments ASAP. Individuals eligible for a 2021 Child Tax Credit can receive a portion of the credit in advance via payments starting July 1, 2021, through December 31, 2021.
• Online Portal to update information. The law requires the IRS to create a new online portal through which families can update their information for the credit. However, more specific information about the Portal is not yet available.
• The credit was expanded to include children aged 17 years old. As a result, children 17 years old and younger will now be covered by the Child Tax Credit.
• The Child Tax Credit is fully refundable for 2021. Non-filers who qualify for the child tax credit can receive the full credit as a refund, even if they have no tax liability.
• Advance Child Tax Credit payments are not income and will not be reported as income on your 2021 tax return. Advance Child Tax Credit payments are advance payments of your tax year 2021 Child Tax Credit.

ARE YOU ELIGIBLE FOR THE CHILD TAX CREDIT (CTC)?

A child generally qualifies you for the CTC if the child meets all the following conditions:

• The child is your son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half brother, half-sister, or a descendant of any of them.
• The child was 17 years old or younger at the end of 2020.
• The child did not provide over half of his or her own support for 2020.
• The child lived with you for more than half of 2020 (some exceptions may apply).
• The child is claimed as a dependent on your tax return.
• The child does not file a joint tax return for the year.
• The child was a U.S. citizen, U.S. national, or U.S. resident alien.

FOR 2021, THE CHILD TAX CREDIT IS SUBJECT TO TWO SETS OF PHASE-OUT RULES

The Child Tax Credit phases out in two different steps based on your modified adjusted gross income (AGI) in 2021.

The first phase-out can reduce the Child Tax Credit to $2,000 per child.

• That is, the first phase-out step can reduce only the $1,600 increase for qualifying children ages five and under and the $1,000 increase for qualifying children ages 6 through 17 at the end of 2021.

The second phase-out can reduce the remaining Child Tax Credit below $2,000 per child. The Child Tax Credit begins to be reduced to $2,000 per child if your modified AGI in 2021 exceeds:

• $150,000 if married and filing a joint return or if filing as a qualifying widow or widower;
• $112,500 if filing as head of household; or
• $75,000 if you are a single filer or are married and filing a separate return.

The first phase-out reduces the Child Tax Credit by $50 for each $1,000 (or fraction thereof) by which your modified AGI exceeds the income threshold described above that applies to you.

The Child Tax Credit won’t begin to be reduced below $2,000 per child until your modified AGI in 2021 exceeds:

• $400,000 if married and filing a joint return; or
• $200,000 for all other filing statuses.

The second phase-out reduces the Child Tax Credit by $50 for each $1,000 (or fraction thereof) by which your modified AGI exceeds the income threshold described above that applies to you.

CHANGES TO YOUR FAMILY’S INCOME

When you file your 2021 tax return during the 2022 tax filing season, you will need to compare:

• The total amount of the advance Child Tax Credit payments that you received during 2021; with
• The amount of the Child Tax Credit that you can properly claim on your 2021 tax return.

Excess Child Tax Credit Amount: If the amount of your Child Tax Credit exceeds the total amount of your advance Child Tax Credit payments, you can claim the remaining amount of your Child Tax Credit on your 2021 tax return.

Excess Advance Child Tax Credit Payment Amount: If you receive a total amount of advance Child Tax Credit payments that exceed the amount of Child Tax Credit that you can properly claim on your 2021 tax year, you may need to repay the IRS some or all of that excess payment.

Millions of families are now receiving important information about the 2021 child tax credit payments. Check the mail and your bank account on July 15.

YOU RECEIVED A LETTER FROM THE IRS - NOW WHAT?

Congratulations. If a letter arrives in the mail, it means the IRS thinks you could qualify for the upcoming child tax credit, based on the information it has from your 2019 or 2020 tax return. Until there's a check-in your hand or direct deposit in your bank account, it's not a good idea to treat this letter as a guarantee, but it appears your chances are good. As with all IRS correspondence, hold on to this letter for your records.

WHAT IF YOU DON'T GET A LETTER FROM THE IRS?

If a letter never shows up in your mailbox, that doesn't necessarily mean the IRS is skipping over you for the child tax credit payments. After all, most US households with children will receive some portion of the money earmarked for parents. So, for example, while 36 million families are intended to get a letter, up to 39 million households could qualify for the credit. That means, 3 million households could see a check but no confirmation letter.

You might not get a letter if the IRS:

• • Doesn't have enough information on hand to determine if you and your family are eligible.
  • Doesn't have your current mailing address.
  • Flags an issue with shared custody.
  • Thinks you or your children don't meet the qualifications.

WHO GETS A FOLLOW-UP LETTER FROM THE IRS?

If you do get the go-ahead from the IRS to receive child tax credit payments (which start July 15), you'll receive a second letter that confirms your eligibility. It also ballparks how much money you should expect to see in those checks.

In January 2022, the IRS will send you Letter 6419 to provide the total amount of advance Child Tax Credit payments that were disbursed to you during 2021. Please keep this letter regarding your advance Child Tax Credit payments with your tax records. You may need to refer to this letter when you file your 2021 tax return during the 2022 tax filing season.