Spring is a time to refresh and renew. As we find ourselves in the thick of tax season, with Spring just around the corner, you'll want to check out this refresher —or primer—on a significant tax break that benefits families.
Below, Integrity HR Management (IHRM) offers basic information about the Child Tax Credit (CTC) and tips to take advantage of it.
What Is the Child Tax Credit?
The CTC is a tax credit available to taxpayers with qualifying dependent children, intended to offset some of the costs associated with raising a family. The CTC was introduced in 1997 as part of the Taxpayer Relief Act. Since its creation, it has played a significant role in offering financial support for American taxpayers and children.
The tax credit has traditionally offered up to $2,000 per qualifying dependent but expanded in 2021 to $3,600 as part of the American Rescue Plan of 2021 - the coronavirus relief package implemented in March 2021. For the first time in history, a portion of taxpayers received half of the credit in advance monthly payments in 2021 from July through December.
Who Qualifies for the Child Tax Credit?
Below are the conditions to qualify for the CTC. All information is taken from NerdWallet and its blog "Child Tax Credit 2021-2022: What It Is and How to Claim It."
"For the 2021 tax year, you can take full advantage of the expanded credit if your modified adjusted gross income is under $75,000 for single filers, $112,500 for heads of household, and $150,000 for those married filing jointly.
The credit begins to phase out above those thresholds.
First phaseout: Income exceeds the above thresholds but is below $400,000 (married filing jointly) or $200,000 (all other filing statuses). Your total credit per child can be reduced by $50 for each $1,000 (or a fraction thereof). This phaseout will not reduce your credit below $2,000 per child.
Second phaseout: Income exceeds $400,000 (married filing jointly) or $200,000 (other filing statuses). The phaseout will continue docking $50 per each $1,000 and begin to reduce your credit per child below $2,000. You may be disqualified from the credit altogether.
Some of the other eligibility requirements for the child tax credit include:
You must have provided at least half of the child's support during the last year, and the child must have lived with you for at least half the year (there are some exceptions to this rule; the IRS has the details here).
The child cannot file a joint tax return.
You must have lived in the U.S. for more than half the year (or, if filing jointly, one spouse must have had a main home in the U.S. for more than half the year)."
IHRM recommends employees visit NerdWallet's site for more information on the CTC and overall financial wellness.
Does the Child Tax Credit Affect My Taxes?
For 2021 tax filers, it's important to recognize the CTC is refundable, meaning a tax bill can be reduced on a dollar-for-dollar basis, with some filers receiving a tax refund check for amounts remaining. Those looking to determine how much credit to claim for their 2021 return depend on factors such as advance payments, the amount received in advance, and your tax-filing circumstances.
For advance payments: Tax filers can expect to receive Letter 6419 from the IRS, which provides a detailed summary of advance CTC payment amounts, and confirms the number of qualifying dependents the IRS calculated to determine the advance payments. Letter 6419 will help reconcile the credit as you prepare to file your tax return.
Opted out of advance payments: Taxpayers that opted out of the advance payments before the first one dispersed in July can claim the credit on their return more efficiently. When filing, a filer will confirm their eligibility for the CTS and claim the total amount they were entitled to in 2021 and the number of qualifying dependents.
For individuals who don't file taxes: For low-income filers who traditionally do not file a tax return, the IRS offered an option to receive advance CTC payments using a non-filers sign-up tool. To claim the balance or receive the full credit if advance payments were not given, individuals/families will have to file a return for the 2021 tax year.
Takeaway
As taxpayers, it's vital to know as much as you can about the tax breaks available to you and your family. The CTC intends to offer financial relief and benefits to help offset some of the rising living costs for families.
Improve your financial literacy today by researching your eligibility to understand how the CTC can help your family save this year.