If you have children, you’ve potentially received child tax credit payments throughout 2021.
But as with all new tax credits, it is understandable to have many questions. For starters - you may not even realize that these payments were an “advance” on your 2022 tax filing!
As we enter tax filing season, it is an excellent time to explore all of your tax-related questions.
In partnership with H&R Block, let’s talk about how to reconcile your advance Child Tax Credit payments. H&R Block Online is one of our top Overall Choices of Tax Software, and they make filing your taxes and reconciling your child tax payments simple. Check out H&R Block Online here >>
What Is The Child Tax Credit?
The expanded child tax credit and advance were instituted as a response to ease the financial burdens that parents have faced throughout the pandemic. If you filed tax returns with children in 2019 or 2020, or signed up to receive a stimulus check from the IRS, then you were automatically enrolled to receive an advance of the Child Tax Credit. However, you could have also opted-out as well.
You may have received a direct deposit (or paper check) in 2021 representing a portion of the CTC you were eligible for based on your 2020 (or 2019) return.
As a parent, you can potentially claim a refundable child tax credit of up to $3,600 per child (less any advance received). That can make a significant impact on any budget!
How To Reconcile Your Advance Child Tax Credit Payments
The extra funds hitting your bank account were likely appreciated. But now that it is tax time, you’ll need to reconcile any advance Child Tax Credit payments you received.
Here’s a step-by-step guide to help you reconcile your advance Child Tax Credit payments.
Determine The Total Amount Of Child Tax Credits You Received
First things first, you’ll need to determine the total amount of Advance Child Tax Credit payments you received in 2021. You can do this by tallying up any advance payments you received throughout the year.
If you aren’t sure how much you received, that’s okay! The IRS plans to send you a letter with the details.
Keep an eye out for Letter 6419 to find the total amount of Advance Child Tax Credit payments distributed to you during 2021. Once you receive the letter, you should keep a copy for your records.
As a side note, a married couple who filed jointly will receive two of these letters. They will likely show half of the payment paid to each spouse - and both will be needed for your reconciliation.
Determine The Amount Of Child Tax Credit You Can Claim
Next up, you’ll need to determine the amount of Child Tax Credit you are eligible to claim.
The maximum amount per child is $3,600 per year per child ages 5 and under. That number drops to $3,000 per year per child ages 6 to 17. But $3,000 per child is still more than previously received (and 17-year-olds weren't eligible for the credit previously).
In addition to age-related eligibility, your income will impact the amount you are eligible for. The IRS can reduce the Child Tax Credit to $2,000 per child at the following Adjusted Gross Income (AGI) thresholds:
- If you earn $150,000 filing joint with a spouse or as a qualifying widow or widower
- If you earn $112,500 filing as a head of household
- If you earn $75,000 as a single filer
The phaseout in eligibility will reduce the Child Tax Credit by $50 for each $1,000 that your AGI exceeds the income threshold. For example, let’s say you are a married couple filing jointly with a two year old child that earned $151,000 in Adjusted Gross Income. In that case, you would be eligible for $3,550 in Child Tax Credit for 2021. If you received the appropriate amount of advance, you’ll be able to claim the remaining $1,775 on your return.
Additionally, your eligibility can be reduced below $2,000 per child at the following AGI thresholds:
- If you earn $400,000 filing joint with a spouse
- If you earn $200,000 filing with any other status
For example, let’s say you are a single parent filing with a one-year-old child that earned $201,000 in Adjusted Gross Income. In that case, you would be eligible for $1,950 in Child Tax Credit for 2021. If you received the appropriate amount of advance, you could claim the remaining $975 on your return.
Take a minute to determine what amount of Child Tax Credit your family is eligible for.
Compare The Amounts
With both the amount you received and the amount you are eligible for in hand, you can compare the two numbers. Since the advance payments are based on your tax returns of 2020, it's possible that you received more or less than you were eligible for.
Here’s what to do in the following situations.
I Received Less Than I Was Eligible For
If you received less than the full amount you are eligible for, you can claim the excess Child Tax Credit on your 2021 tax return. That’s it! You’ll need to include this information on your tax return to complete the reconciliation process.
I Received More Than I Was Eligible For
The reconciliation process gets more complicated if you received more advance Child Tax Credit payments than you are eligible for. In some cases, you may need to repay the IRS.
Before automatically repaying the difference, stop to explore the repayment protection program. You may not be required to repay some or all of the excess funds you received with repayment protection.
You will qualify for full repayment protection if your AGI for 2021 is:
- $60,000 or less as a married couple filing joint or qualified widow or widower
- $50,000 or less as a head of household
- $40,000 or less if you are a single filer
You will not qualify for repayment protection of any kind if your AGI for 2021 is:
- $120,000 or more as a married couple filing joint or qualified widow or widower
- $100,000 or more as a head of household
- $80,000 or more if you are a single filer
It's a good idea to consult with a tax professional to confirm your eligibility for the repayment protection program.
Does all of that sound confusing? It doesn’t have to be. H&R Block Online makes reconciling your advance Child Tax Credit payments simple. They will ask you a few questions about how much you received, and they'll calculate exactly how much you might get back in your tax refund (or owe if you were overpaid).
Check out H&R Block here >>
What To Consider For 2022
As of January 2022, the Child Tax Credit has not been extended. At this time, the Child Tax Credit goes back to $2,000 per child for children ages 16 and below, advances on the credit will not be paid and the amount will be reduced when the taxpayer's income is over $200,000 ($400,000 for MFJ). If Congress passes a bill to reinstate the program, then you’ll need to follow a similar reconciliation process in 2022.
Keep in mind that changes in filing status and income can significantly impact your eligibility for the Child Tax Credit.
Once you finish your tax return with H&R Block, you can have a better picture of your tax situation and decide if you still want to receive advance Child Tax Credits should they end up being extended into 2022.
Remember, if you were overpaid, you’ll have to pay it back - so finishing your tax return early can also help you budget if you end up owing the IRS.
Get started with H&R Block here and see what your refund could be >>
Doing your taxes is likely not your favorite chore. Although the Child Tax Child may have helped your budget, it could make your taxes a tad more complicated to file.
As you go through the process, consider using H&R Block online. It can help you breeze through tax filing season in no time, even with complicated situations like the advance Child Tax Credit.
Get started with H&R Block online here >>
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.