The Family TaxAct’s Guide to Your Taxes in 2021
It costs a lot of money to raise a child. Fortunately, becoming a parent comes with a slew of tax benefits, the most notable of which is the Child Tax Credit (CTC).
What is the Child Tax Credit, and how does it work?
The Child Tax Credit (CTC) is a tax break for parents who have children who are not their own. It’s designed to help parents save money when it comes to raising children.
The CTC is entirely refundable for the tax year 2021, which means you can claim it even if you owe no taxes or did not generate any income the previous year. You can claim the CTC for any children under the age of 17 on your 2021 return (in prior years, you could only claim the credit for children under 17).
What is the Child Tax Credit and how does it work?
From July to December of 2021, many families will get advance child tax credit payments. You will be able to claim the remainder of your child tax credit when you file this year if you have received these monthly installments.
The CTC, like other tax credits, is beneficial because it decreases your tax payment dollar for dollar. If your adjusted gross income (AGI) in 2021 was $50,000 and you qualified for a $6,000 Child Tax Credit, the credit will decrease any taxes you owe by $6,000. So, if your tax bill is $8,000, your $6,000 credit will lower your total tax liability to $2,000, saving you money.
To summarize, this year’s child tax credit is completely refundable. So, if you qualify for a $6,000 CTC but only owe $3,000 in taxes, your tax credit reduces your bill to $0, and you keep the remaining $3,000 in your pocket.
What is the amount of the child tax credit in 2021?
The maximum total credit amount rose from $2,000 per child to $3,000 per child ages 6-17 (and up to $3,600 for children aged 5 and under) for the 2021 tax season.
The enhanced credit of $1,000 or $1,600, depending on your tax filing status, begins to phase off based on your AGI.
If your AGI is, you are eligible to claim the maximum amount of the child tax credit:
The maximum for single filers is $75,000 or less.
A combined income of $150,000 or less is required for married couples filing jointly.
head-of-household filers must file for $112,500 or less.
Even if your AGI exceeds those limits, you may still be eligible for a portion of the additional tax benefit. In that case, for every $1,000 you earn beyond the income criteria, the increased part of the credit (either $1,000 or $1,600 per kid) is decreased by $50. For example, if you file a combined 2021 return with an AGI of $160,000 and two children under the age of five, your full Child Tax Credit amount will most likely be $6,700.
Until your AGI surpasses $200,000 (or $400,000 for joint filers), the initial $2,000 credit per qualified child begins to phase down.
Is the Child Tax Credit available to me?
The age of the child and your relationship with the child determine your eligibility for this tax benefit. The child you’re seeking credit for in 2021 must be 17 years old or younger on December 31, 2021. Your sons and daughters must be your sons and daughters. They must also be an adopted or foster child of your son or daughter. They must also be a younger sibling or stepsibling of your son or daughter.
In order to claim the Child Tax Credit in 2021, you’ll need a social security number (SSN) or an individual taxpayer identification number (ITIN) (ITIN). Any child you claim must have a legitimate Social Security number.
You may be eligible to claim the credit for other dependents if the child does not have a valid SSN but does have an ITIN. People who aren’t eligible for the CTC can receive a $500 government credit. It’s also possible for people who aren’t related to you to have it.
When will the checks for the child tax credit be mailed?
The monthly CTC payments will not be renewed in 2022, as of now. If you got advance monthly payments last year, you can claim the remaining portion of your child tax credit when you file your 2021 income tax return. You will be able to claim your entire credit on your return if you did not receive the advance payments when you should have.
You can claim the excess or full credit amount as part of your tax return if your CTC is greater than your tax bill or if you don’t owe any taxes.
On its website, the IRS has a helpful “Where’s My Refund?” option. Once your tax return has been accepted, you may use this tool to track the status of your refund and find out when your check or direct transfer will arrive.
Is there a tax on the child tax credit?
Not in the least. The Child Tax Credit is tax-free, as are any monthly advance CTC payments you received last year.
Is it necessary to repay the child tax credit?
With two possible exceptions, most families will not have to pay back the child tax credit when they file in 2022.
Between 2020 and 2021, your income increased dramatically (by tens of thousands of dollars).
You and your ex-spouse are divorced, and you typically claim the Child Tax Credit together. Even though they normally do not, parents who claimed the CTC on their 2020 tax return received early payments for 2021.
Check out our post on how advanced CTC payments may affect your tax return and, by extension, your tax refund for more information on these types of scenarios.
Is it necessary for me to declare my child tax credit payments in advance on my 2021 return?
The IRS will send you Letter 6419 if you received monthly CTC payments in 2021. When completing your income tax return this year, have this letter handy to compare the monthly credit amounts you got to the amount you can claim appropriately on your 2021 tax return. Keep this letter to guarantee that you receive the maximum amount of the child tax credit for which you qualify!