Refunds, payments, returns…it must be tax season! If things weren’t confusing enough, your tax return could look a little different thanks to changes that occurred to the child tax credit in 2021.
While the change was aimed to help parents, many of you may be confused about what it means for you and your family. At Rock and Roll Daycare in Alexandria, we know these types of things are important to you, which is why we’re here to help.
Let’s take a look at the child tax credit and how it works so you don’t get surprised when you’re done filing your taxes.
What is the Child Tax Credit?
The Child Tax Credit is a fully refundable tax credit for families with children who qualify. The goal is to help offset the expensive cost of raising kids. In 2015, the U.S. Department of Agriculture estimated the cost of raising a child to age 18 to be $233,610. When you factor in inflation, the lifetime cost of raising a child to age 18 who is born in 2022 could reach as much as $272,049.
For the tax year 2021, the Child Tax Credit is fully refundable. This means you claim it even if you don’t owe taxes or have no earnings. You can claim the credit for any children ages 17 or under.
Changes to the Child Tax Credit
In 2021, the American Rescue Plan expanded the Child Tax Credit to help families. The credit increased from $2,000 per child to $3,600 for each child under the age of 6. For children ages 6 to 17, the credit increased from $2,000 to $3,000.
Under the American Rescue Plan, the IRS disbursed half of the 2021 Child Tax Credit in monthly payments during the second half of 2021, unless parents opted out of it. This means from July to December, parents received either $250 per month per child or $300 per child depending on the child’s age.
Based on your adjusted gross income (AGI), the increased credit can begin to phase out. Here’s how it breaks down:
You qualify to claim the maximum value of the Child Tax Credit if your AGI is:
- $75,000 or less for single filers
- $150,000 or less for married couples filing jointly
- $112,500 or less for head-of-household filers
If your AGI is higher than those limits, you may still be eligible to receive a portion of the increased tax credit. The original $2,000 credit per eligible child doesn’t start to phase out until your AGI exceeds $200,000 for single filers and $400,000 for joint filers.
Filing Your Child Tax Credit on Your Return
If you received the advance monthly payments last year, you will be able to claim the remainder of your Child Tax Credit when you file your 2021 return. If you didn’t take the advance payments and were eligible for them, you can claim the full credit on your return.
If your Child Tax Credit ends up being more than your taxes or you don’t owe taxes, you can claim the excess or full credit as part of your refund.
FAQ About the Child Tax Credit
Q: Do I have to pay taxes on the Child Tax Credit?
A: Money received from the child tax credit is not taxable.
Q: Do I need to report any advance Child Tax Credit payments on my 2021 return?
If you received the tax credit payments in 2021, you should have gotten Letter 6419 from the IRS for when you file your taxes. This is helpful because it assures you receive the full Credit Tax Credit you qualify for.
Q: Do I have to pay back the Child Tax Credit?
A: Most families will not, but there’s always an exception to the rule. These exceptions are:
- You had a huge increase in income from 2020 to 2021.
- You are divorced and typically take turns claiming the credits, but the parent who claimed the credit on their 2020 return also received the advance payments for 2021.
If you have more questions or need further information, see the IRS’ Advance Child Tax Credit Payments in 2021 Guide.