Tax Tips: Expanded Child Tax Credit (CTC) and Advance Payments
The American Rescue Plan Act expanded the eligibility and amounts of the child tax credit for 2021 tax returns:
- The definition of a qualifying child is broadened for 2021 to include 17-year-olds (i.e., children who haven’t turned 18 by the end of 2021).
- The CTC is increased to $3,000 per child ($3,600 for children under age 6 as of the close of the year) for 2021. The increased credits are subject to complex income phase-out rules. The credits are stepped down to $2,000 at higher incomes—and are phased-out for joint filers with AGI over $400,000.
- The CTC is fully refundable for most taxpayers for 2021, which means you receive the credit even if you have no tax liability.
The IRS established a program to make periodic monthly payments equal to 50% of eligible taxpayers’ 2021 CTCs. The payments were sent July through December 2021. To determine the amount of the advance CTC payments, the IRS looked at 2020 returns (or 2019 if 2020 had not been filed).
If you received advance CTC payments a reconciliation must be done comparing the total received with the amount you’re eligible to claim.
To assist with the reconciliation process, the IRS sent taxpayers Letter 6419, Advance Child Tax Credit Reconciliation, from late December 2021 through January 2022. The letter contains the amount of 2021 advance CTC payments and the number of qualifying children used to calculate the advance payments. Taxpayers can also check the amount of advance payments received by using the CTC Update Portal and Online Account on IRS.gov.
If you received total payments that exceed the amount of CTC you can properly claim, you may need to repay some or all of the excess payments.
Please contact your KTLLP advisor for assistance in maximizing your child tax credits.
Consult with your tax professional at Ketel Thorstenson about this or other tax matters because each situation is different. Don’t navigate the difficult and ever-changing tax codes and legislation on your own. Ketel Thorstenson CPAs and tax professionals receive advanced training and continuing education all year long to keep our service on the forefront of the tax industry. Call us today for guidance on tax planning, tax return preparation, and tax legislation affects or questions.