Changes for the Child Tax Credit – Do you qualify?

Changes for the Child Tax Credit – Do you qualify?
February 10, 2022

Some would agree that raising a family has never been more challenging than it is today. The costs of food, housing, utilities, clothing, and childcare have skyrocketed as the economy shifts and adapts to new global supply chain realities.  

Luckily, every year during tax filing season, the U.S. government has given families a bit of hope and motivation. This is what we know as the Child Tax Credit, or CTC, and if you have children, chances are you are eligible! The experts at Waters Hardy & Co, P.C., provide accounting services, including tax preparation services, and can assist you in claiming your Child Tax Credit and maximizing your overall tax benefits. 

What is the Child Tax Credit (CTC)? 

 The Child Tax Credit is an annual tax credit available to taxpayers with qualifying dependent children. The CTC was first introduced as part of the Taxpayer Relief Act of 1997. Since then, it has played an important role in providing financial support for American taxpayers with children. More specifically, the CTC provides money to American families to support the costs of raising their children or saving for their future. 

 How Can Families Benefit from the Child Tax Credit?  

 Once families receive their Child Tax Credit, they are free to use the money as they wish. Some parents have used this money for some of their most basic needs, including food, rent, utilities, and costs related to childcare. Furthermore, studies show that for the most hard-pressed families, the CTC has reduced food insufficiency among low-income families by 25%. This has had a significant impact on lowering child poverty.  

For middle-income parents, some have reported using their CTC for things such as a mortgage, car payment, or paying off credit cards. Families that don’t have as many financial obligations or burdens report tucking their CTC money into a savings account.  

How Did the Child Tax Credit Change for 2021? 

On March 11th, under the Biden administration, Congress passed the American Rescue Plan Act of 2021 as part of a $1.9 trillion aid package. This expanded the CTC and provided historic tax relief to the vast majority of U.S. families.  

Here is how the CTC of 2021 was different than previous years. 

  • Increased amount: The American Rescue Plan significantly increased the amount of Child Tax Credit a family could receive for 2021. An increase from $2,000 to $3,000-$3,600 per qualifying child. It also made the parents or guardians of 17-year-old children newly eligible for up to the full $3,000. 
  • Income eligibility: Married couples making up to a combined $150,000 are eligible to receive the full credit. For families with a single parent making up to  $112,500 are eligible for full benefits. 
  • Advance monthly payments: In a historic move, The American Rescue Plan provided tens of millions of families with advance monthly payments of their CTC between July and December of 2021, worth up to one-half of their estimated full annual credit amount. 
  • Your remaining credit: Families, including those who received part of their Child Tax Credit as monthly payments last year, can get their remaining Child Tax Credit by filing a tax return this year. 
  • Non-taxable: The Child Tax Credit, including the monthly payments received last year, are not taxable. 
  • Does not affect other benefits: Receiving the Child Tax Credit will have no impact on anyone’s eligibility for, or lower the amount, of other federal benefits. 
  • File your taxes to receive your full credit: If you qualified for monthly Child Tax Credit payments but opted to not receive them, you will receive the full credit amount when you file your tax returns. 
  • For parents and legal guardians: Anyone, including grandparents, who are legal guardians may be eligible for the Child Tax Credit. 

How Much is the Child Tax Credit? 

For the 2021 tax year, the Child Tax Credit offers: 

  • Up to $3,000 per qualifying dependent child ages 6-17 years by Dec. 31, 2021. 
  • Up to $3,600 per qualifying dependent child under 6 years old as of Dec. 31, 2021. 

For Advance Payments: 

If you took advantage of the advance payments, the IRS most likely sent half of the credit in the form of monthly payments from July through December of 2021.  

  • Families with qualifying dependents 6-17 years of age might have received up to $250 monthly per dependent. 
  • Families with qualifying dependents age 5 or younger might have received up to $300 monthly per qualifying dependent. 

Who Qualifies for the Child Tax Credit? 

Income Qualifications for Full Credit 

  • Incomes under $75,000, for single filers. 
  • Incomes under $112,500 for heads of household. 
  • Incomes under $150,000 for those married filing jointly. 

Income Qualifications for Partial Credit 

  • Incomes above $150,000 but below $400,000 (married filing jointly) or $200,000 (all other filing statuses), the total per child can be reduced by $50 for each $1,000 (or a fraction thereof). Your credit will not fall below $2,000 per child. 
  • Incomes exceeding $400,000 (married filing jointly) or $200,000 (all other filing statuses), will continue to reduce $50 for each $1,000 and begin to reduce your credit per child below $2,000. You may be disqualified from the credit altogether. 

Other Eligibility Requirements 

  • If you provided at least half of the child’s support during the last year, and the child must have lived with you for at least half of the year. 
  • If you or your partner lived in the U.S. for more than half the year. 
  • The child cannot file a joint tax return.  

More on Advanced Child Tax Credit Payments 

By the end of January, all recipients of the advance child tax credit payments should have received Letter 6419, which will provide a breakdown of all the advance payments disbursed to you. The IRS has asked taxpayers to use the letter to claim their remaining Child Tax Credit on their 2021 returns. If you suspect your Letter 6419 states an inaccurate advance payment total, the IRS advises visiting your IRS online account for the most up-to-date information. 

What if I Opted Out of Advance Payments? 

Claiming the credit on your return will be much simpler if you opted out of the advance payments before the first one was disbursed in July. When filing, confirm eligibility and claim the full amount you’re entitled to depending on your 2021 income and number of qualifying dependents. 

Maximize Your Child Tax Credit 

Tax prep can sometimes get a bit complicated or overwhelming for some families. Mistakes can be made, and qualifying credit can be overlooked. The Child Tax Credit changes for 2021 added an extra layer of complexity to filing this year. It’s essential to find experienced and qualified experts, such as the specialist at Waters Hardy & Co, P.C., to make sure you are receiving the most from your tax return. Claiming what is owed to you in Child Tax Credit does not have to be daunting. Contact us today and let’s work together to get the best return possible for your family.  

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