Federal Child Tax Credit

Changes to the Federal Credit

The American Rescue Plan made some changes to the Child Tax Credit:

  • Increased Child Tax credit from $2,000 to $3,000 for children over the age of 6
  • Increased Child Tax credit from $2,000 to $3,600 for children under the age of 6
  • Raised the age limit from 16 to 17

Who is Eligible for the Federal Credit?

For the advanced child tax credit the phase outs differ by filing status. For 2021, the phase outs begin at:

  • Single: $75,000
  • HOH: $112,500
  • MFJ: $150,000

For 2021, the phase-out is only limited to $1,000 or $1,600 depending on how large your credit is. The credit amount is reduced by $50 for every $1,000 over the AGI threshold a person/family is. If your AGI is below $400,000 for married filing joint or $200,000 for every other filing status, you are still eligible for at least the $2,000 credit. The amount you qualify for will be based on either your 2020 or 2019 return. Non-filers will have to go online and use the IRS non-filers sign-up tool in order to claim their credit. Note only children under 18 on 12/31/2021 are eligible for the credit.

 

How do the Monthly Payments Work?

The advanced credit began July 15th. The final payments for the advanced child tax credit went out on December 15th, 2021. More than 36 million families across the country will receive a payment. Most payments will be directly deposited into bank accounts. More than $16 billion in payments will be given to families for December. Each eligible family should have received a monthly payment through the year-end. The monthly payments total half of what each family is entitled to for 2021. Payment per month will be either $250 or $300 per child depending on the age. The other half will come as part of their 2021 tax return either as a part of a refund or a credit against money owed. Families can choose to opt out of the monthly payments and have it all as one lump sum on their 2021 tax return. To opt out, families need to go on the Advanced Child Credit Portal and create an account. Note that if married, both spouses must complete this. The IRS paid out the advanced credit based on estimates from the families 2019 or 2020 tax return. The result could lead to people being overpaid. If overpaid, the money may be owed back and will either reduce your 2021 tax refund or increase your tax liability. If you qualify for repayment protection some or all of the excess amount received may not have to be paid back to the IRS. Currently, the Advanced Child Credit payments will not be extended to 2022.

 

Letters

The IRS will be sending letter 6419 in January of 2022 to families who were eligible for the advanced Child Tax Credit. Please save these letters and send them with the rest of your tax documents. These letters will contain the total amount of advanced child tax credit received in 2021 and the number of qualifying children used to calculate the credit.

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