The information in this article was last updated on March 2, 2022. This article relates to the tax laws enacted during the COVID-19 pandemic. These laws may have expired or reverted to their original state. For the most recent updates on this topic, see Child Tax Credit from the IRS.
2021 was an eventful year for the Child Tax Credit thanks to changes made under The American Rescue Plan. Now that filing season is here, your clients will likely have questions about Letter 6419, receiving the second half of the credit, and whether these changes will extend to the 2022 tax year. To keep you up-to-date and help you serve your clients, we’re answering your FAQs on the new child tax credit.
What is the Child Tax Credit?
As you likely already know, the Child Tax Credit is a (partially) refundable tax credit for families with children. Unlike tax deductions, which only offset taxes owed at the end of the year, refundable tax credits can be received as a refund even if the taxpayer paid less than the amount of the credit throughout the year.
The Child Tax Credit itself isn’t new. While it has changed throughout the years, it’s recently undergone an extensive overhaul under the American Rescue Plan.
How did the Child Tax Credit change for 2021?
The American Rescue Plan introduced several significant changes to the CTC:
- More money per child: For the 2021 tax year, families are eligible for a maximum tax credit of $3,600 for each child under 6 and $3,000 for each child from ages 6-17. This is an increase from the previous amount of $2,000 per child up to age 16.
- Fully refundable: Previously, only $1,400 of the $2,000 tax credit was refundable, meaning that if a family didn’t owe any taxes at the end of the year, they could receive up to $1,400 of unused credit back in their refund. Now, the entire tax credit is refundable. Even if a family owes no taxes, they’ll qualify to receive the full tax credit as part of their refund.
- Advance monthly payments: Starting in July, families began receiving their CTC as a monthly payment instead of receiving it at the end of the year as a tax refund. Families could choose to opt out of advance payments on the IRS website. If they did receive any advance payments, they should have received IRS Letter 6419 in the mail, detailing exactly how much they received.
Who qualifies for the increased Child Tax Credit?
To qualify for the full amount of the new CTC, your clients’ adjusted gross income (AGI) must be $75,000 or less for single filers, $150,000 or less for joint filers, and $112,500 or less for head of household filers.
The previous thresholds are still in place for families who make more, allowing them to receive a lower child tax credit of $2,000. Just as they did under the previous CTC law, individuals with an AGI of $200,000 or couples with an AGI of $400,000 or less still qualify for $2,000 per child.
What if my client had a new child or other life change in 2021?
The advance CTC payments were based on information from 2020 tax returns. If your client had a life change in 2021 such as a new child, new job, or new salary and did not report it through the CTC Update Portal, they may have received more or less in advance CTC payments than they truly qualified for. As their tax preparer, you’ll make sure these discrepancies are reconciled when they file their 2021 return.
Clients who had a new child and didn’t inform the IRS on the portal will qualify for the full $3,600 credit on their return.
How do my clients claim the rest of their Child Tax Credit?
Filing a 2021 tax return is all your clients need to do to receive the rest of their Child Tax Credit. Even families who would otherwise not be required to file a tax return should file this year to ensure they receive the credit as a refund.
What if my client received excess advance CTC payments?
In some cases, your client may have received more advance CTC payments than they actually qualify for. This may have happened if they claimed a child in their 2020 taxes who they cannot claim on their 2021 taxes. Most low-to-moderate income taxpayers will not have to repay this excess.
They qualify for full repayment protection if their modified adjusted gross income (MAGI) is at or below:
- $60,000 for married filing jointly
- $50,000 for head of household
- $40,000 for all other filing statuses
They’ll qualify for partial repayment protection if their MAGI is below:
- $120,000 for married filing jointly
- $100,000 for head of household
- $80,000 for all other filing statues
Does my client need Letter 6419 to file?
IRS Letter 6419 was sent by the IRS in January to any family who received advanced monthly Child Tax Credit payments, and yes, these families will need the information found on this letter when they file their taxes. The letter tells them exactly how much they received in advance payments. For couples who are married filing jointly, each parent should receive their own Letter 6419.
If they lose their Letter 6419, they can still access the information using the Child Tax Credit Update Portal. They’ll just need to log in with their existing IRS username or an ID.me account.
How does a taxpayer get Letter 6419?
Taxpayers don’t need to do anything to receive their Letter 6419. But if they think that they should have received one and did not, they can access the same information through the Child Tax Credit Update Portal. Anyone who opted out of the advance payments before July and therefore received $0 in advance CTC payments will likely not receive a Letter 6419.
Will the increased Child Tax Credit continue for tax year 2022?
No. These changes only apply to the 2021 tax year. For tax year 2022, the Child Tax Credit will revert to the previous amounts and income thresholds, and there will be no advance monthly payments.