The Internal Revenue Service on Tuesday updated its Child Tax Credit and Advance Child Tax Credit FAQ fact sheet with new information about the requirements and how to calculate the payment amount.
The administration of President Joe Biden expanded the Child Tax Credit as part of the American Bailout Act last year, offering families up-front monthly payments of $250 to $300 per child during the second half of the year, depending on the age.
For tax year 2021, the Child Tax Credit increased from $2,000 per qualifying child to $3,600 for children under the age of five, and $3,000 for children ages six to 17.
Biden had hoped to extend expanded tax credits this year as part of the Build Back Better Act, but the massive legislative package stalled in the Senate after it passed the House last year.
About half of the total amount of the entire tax credit was distributed to families last year, from July to December. But taxpayers and tax preparers are grappling with calculating how much can still be claimed and, in some cases, how much is owed to the government if there was an overpayment.
Many taxpayers are receiving less of their tax refund this year than they had anticipated, since half the usual amount of the Child Tax Credit was sent up front last year along with the expanded portion.
The IRS advises families to ignore the Child Tax Credit Publication 972 , which has become obsolete. Now both taxpayers and tax preparers will need to refer to Schedule 8812 (Form 1040) .
“Schedule 8812 (Form 1040) is now used to calculate child tax credits and to report advance payments of child tax credits received in 2021, and to calculate any additional tax due if advance payments of child tax credits were received in excess during 2021,” the IRS highlighted in its new fact sheet .
WHO IS A “QUALIFIED CHILD” FOR PURPOSES OF THE 2021 CHILD TAX CREDIT?
For tax year 2021, a qualifying child is a person who did not turn 18 on or before January 1, 2022, and who meets the following conditions:
The individual is a son, daughter, stepchild, qualifying foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of any of them (for example, a grandchild, niece, or nephew).
The person (claimed dependent) does not provide more than half of his or her own support during 2021.
The dependent lives with the taxpayer for more than half of tax year 2021. For exceptions to this requirement, see IRS Schedule 8812 (Form 1040) , Credits for Qualifying Children and Other Dependents.
The individual is duly claimed as a dependent of the taxpayer. For more information on how to properly claim a dependent, see Publication 501, Dependents, Standard Deduction, and Filing Information .
The person does not file a joint return with the person's spouse for tax year 2021 or files only to claim a refund of income tax withheld or estimated tax paid.
The dependent was a US citizen, US national, or US resident alien. For more information on this status, see IRS Publication 519, US Tax Guide for Aliens.
WHAT IS THE AMOUNT OF THE CHILD TAX CREDIT FOR 2021?
For tax year 2021, the Child Tax Credit increased from $2,000 per qualifying child to:
$3,600 for children under 5 years old at the end of 2021
$3,000 for children ages 6-17 at the end of 2021
NOTE: The amount of the $500 Non-Refundable Credit for Other Dependents has not changed. For more information about the credit for other dependents, see IRS Schedule 8812 (Form 1040), Credits for Qualifying Children and Other Dependents.
HOW ARE MY ADVANCE PAYMENT CHILD TAX CREDIT AMOUNT DETERMINED?
The IRS determined Child Tax Credit advance payment amounts by estimating the amount a taxpayer would qualify to claim on their 2021 tax return during the 2022 filing season.
The 2021 Child Tax Credit estimate was based on information shown on the processed 2020 tax return (which includes information the taxpayer entered into the Non-Filer Registration Tool in 2021).
If the IRS had not processed the 2020 tax return, the calculation would then be based on the information shown on the 2019 tax return (which includes
information you entered into the Non-Filer Registration Tool in 2020).
If the IRS processed the 2020 return, the agency recalculated the Child Tax Credit advance payments and adjusted the remaining monthly payments.
Disbursement of Child Tax Credit advance payments began in July and continued monthly through December 2021, generally based on the information on your 2019 or 2020 federal income tax return.
If you qualify for the Child Tax Credit but did not receive advance payments of the Child Tax Credit, you can claim the full amount of the credit when you file your 2021 tax return during the 2022 filing season.
WHAT IS SCHEDULE 8812 AND WHY CAN AN ERROR DELAY MY REFUND AND CREDIT FOR CHILDREN?
If you received advance child credit payments, the IRS will send you Notice 6419, which lists the exact amounts you received from July through December.
Box 1 of the letter contains the "total amount of AdvCTC payments you received for 2021."
That number is what you'll need to enter on Schedule 8812 (the tax form for claiming credits for qualified children and dependents) on lines 14f or 15e, whichever applies to you. Those who file a joint return will have to add the amounts that appear in Box 1 of Notice 6419 that each one received on their Schedule 8812.
A second box on the letter will include the number of children the parents are claiming for the child tax credit.
Schedule 8812 specifically states on line 14f: "Caution: If the amount on this line does not match the aggregate amounts reported to you (and your spouse if filing jointly) in your Notice(s) 6419, the processing of your return will be delayed.”
Taxpayers should make sure the full amount they received in advance payments is accurate when they file their tax returns.
If this information is not correct on the 2021 tax return, taxpayers risk waiting weeks before seeing their refund reflect in their bank account.