Whether you have a child, are planning for one, or are just curious about the options when filing your taxes, the Child Tax Credit is an incredibly important credit to know about. In fact, last year there were changes made by the 2021 American Rescue Plan that allowed for advance payments of the Child Tax Credit to qualifying citizens. That is just one example of many caveats of tax planning that can change on a whim and can benefit you greatly if you’re aware of it.

What is the Child Tax Credit?

The child tax credit, also known as CTC, is an annual tax credit that is available to taxpayers that meet the requirements of dependent children. Historically, the credit allowed up to $2,000 per qualifying dependent. So, if you have three qualifying dependents, you would be eligible for up to $6,000 in child tax credit.

However, in 2021, as a part of the American Rescue Plan (The Coronavirus Relief Package), this credit was expanded up to $3,600 per qualifying dependent. Not only was the amount increased, but taxpayers were given half their credit in advance via monthly payments from July – December 2021.

According to the IRS, the 2021 tax year child tax credit offers:

  • Up to $3,000 per qualifying dependent child 17 or younger on Dec. 31, 2021.
  • Up to $3,600 per qualifying dependent child under six on Dec. 31, 2021.

It’s important to note that if you took advantage of the advance payments, this may affect how you file your taxes in 2022.

What Are the Qualifications of the Child Tax Credit?

As of 2021, the tax credit qualifications were adjusted to meet the needs of more families. The requirements are as follows:

  1. Age: The child must be under 18 by the end of 2021. Amounts could increase if the child is under 6 years of age by the end of 2021
  2. Relationship: The child must be yours either biologically or adopted, a stepchild, or foster child. Siblings, stepsiblings, and their descendants can be claimed if they meet all other requirements.
  3. Support: The child cannot have provided more than half of their own financial support during the year.
  4. Dependent: You must claim the child as a dependent
  5. Citizen: The child must be a U.S. citizen, national, or resident alien
  6. Residence: The child must have lived with you for more than half the tax year.
  7. Family income: Family income must be less than $75,000 for single, $112,500 for head of household, or $150,000 for joint filed returns. Anything above these income amounts, the credit is reduced by $50 for every $1,000 above each threshold.

What does the Child Tax Credit mean for my taxes?

For the 2021 tax year, the child tax credit is fully refundable. How you file your credit will be dependent on whether or not you received advance payments in 2021. If you received advance payments, you should have also received Letter 6419 that contains a detailed summary of the payments. You need this document when filing your taxes.

If you opted out of advance payments, you would file as you typically do, by claiming the credits you are eligible for on your Form 1040. Typically, you will not have to pay back any of the credit, since it is not taxable income. However, if you received advance payment based on your 2020 income and saw significant increases to that number in 2021, you will need to report the misappropriated amount as income.

There is an incredible number of options and best practices to consider when looking at how to file your taxes. To increase your chance of properly assessing your options, it’s best to work with a professional who can ensure the best bang for your buck (literally). North Georgia Tax Solutions keeps up with tax news, so you don’t always have to! Contact a professional you can trust and use NGTS to stay on top of what’s happening in the tax world!

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