By: Scott Glasgow
You may recall our blog post from last year titled Should You Opt Out of 2021 Child Tax Credit Advance Payments? If you did not opt out and you received 2021 advance Child Tax Credit payments, your 2021 income tax return must reconcile the advance payments you received with the total amount for which you are eligible. Today’s blog post reviews key points you should be aware of before doing so.
Unique Child Tax Credit System for 2021
In March of 2021, changes were made to the Child Tax Credit (“CTC”) for the 2021 tax year.
- Increased Amounts. For qualifying taxpayers in 2021 the CTC was expanded from $2,000 to $3,000 per dependent ages 6 to 17, and from $2,000 to $3,600 for children age 5 or younger. (CTC amounts phase out between $75K-150K of total income for single taxpayers, and between $150K - $400K of total income for married taxpayers.)
- Advance Payments. Beginning in July of 2021, eligible parents/guardians could receive up to half of their estimated CTC through monthly advances (via check or direct deposit) through the end of the year. The last of these installments was issued on December 15th.
Be Aware of Schedule 8812
If you received advance CTC payments in 2021, a Schedule 8812 must be prepared and attached to your 2021 income tax return. The Schedule 8812 is used to calculate your child tax credits, to report advance child tax credit payments you received in 2021, and to figure any additional tax owed if you received excess advance child tax credit payments during 2021.
Watch for Your IRS Letter 6419
Taxpayers who received advance payments should have received IRS Letter 6419 indicating the total amount of payments that were disbursed during 2021. If you are married, both you and your spouse will receive a separate letter.
This is an important letter and should be submitted along with all other tax documents to your tax preparer.
The amount in Box 1 of Letter 6419 should be entered on Schedule 8812, which should accompany your tax return. If you file jointly with your spouse, the total amount in Box 1 from both spouse’s Letter 6419 should be reported on Schedule 8812.
When your 2021 tax return is filed, the total amount of any advance CTC payments you received will be reconciled with the total CTC amount that can be properly claimed based on your actual 2021 income and filing status.
Reconciliation of Credit: Refund or Repayment?
2021 advance payments were based on an IRS estimate – using either information from a 2020 or 2019 tax return, or from information provided through the Child Tax Credit online portal – so it is possible that payments could differ from the allowable credit. Examples of changes that can cause this scenario include:
- A previously qualifying child no longer meets the qualifying child test.
- An increase in 2021 income.
- A filing status change for 2021.
If the amount allowable exceeds the total of your advance payments, the remaining amount of the credit will be fully refundable. Conversely, if total advance payments exceed the amount that can be properly claimed, part or all of that excess payment may need to be repaid to the IRS.
Note: The IRS offers full or partial repayment protection based on certain income thresholds for those who fall into the excess payment category. You can learn more about this protection here.
For additional information, the IRS recently updated its Frequently Asked Questions regarding the CTC found here: FAQs
Please feel free to contact me if you would like to discuss the child tax credit or the reconciliation process.
 CTC advance payments are not considered taxable income and should not be reported as taxable income on your 2021 tax return.