Taxpayers with qualifying dependent children are eligible for the child tax credit, which for the tax year ending in 2021 was expanded to a maximum of $3,600 per child aged 5 or younger and up to $3,000 for children aged 6 through 17. This credit was increased from $2,000 per qualifying child as part of the American Rescue Plan, which was the coronavirus relief plan. So, you may be asking “How will the child tax credit affect my taxes?”
Qualifying for the Credit
You must have provided at least half of the child’s support amount to qualify for the credit. For at least half the year, the child must have lived with you and you must have lived in the United States. Single filers must have a modified adjusted gross income of $75,000 or less while the income limit for married couples filing jointly is $150,000. Heads of households must have adjusted gross income less than $112,500. Those whose income exceeds these thresholds may qualify for lower credit.
In 2021, eligible tax players were able to receive monthly payments between July and December 2021 toward half of the annual child tax credit. Monthly payments were in the amount of $250 to $300 per qualifying child depending on age. If you received advance payments, you’ll receive Letter 6419 from the IRS which provides information on the amount distributed to you and how it was calculated. You’ll need this form when you file your taxes. If you opted out of advance payments, you’ll be able to claim the full credit on your tax return.
Do You Have to Pay Back the Credit?
A tax credit can reduce the total amount of taxes you pay, but it’s not considered income. If you did receive advance payments, they were calculated based on information on your 2020 tax return. If you were overpaid because of a change in your circumstances such as higher income or different custody arrangements, you’ll need to report this on your tax return as additional income tax. This may reduce the amount you receive as a refund or may mean you owe a tax payment.
Understanding Tax Laws
Families who don’t usually file taxes need to file to claim the credit or the remaining credit they haven’t yet received. If the way the child tax credit works is unclear to you, you can get more information on the IRS website. Working with a tax preparer can be helpful if you find tax laws confusing or have additional questions about your tax return.
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