Everything You Need to Know About the Child Tax Credit

Elevating children is dear. Fortunately, changing into a mother or father comes with some priceless tax breaks — most notably, the Little one Tax Credit score (CTC).

What’s the Little one Tax Credit score?

The CTC is a tax credit score for folks of dependent youngsters designed to assist offset the price of elevating children.

For tax 12 months 2021, the CTC is totally refundable, that means you possibly can declare this tax credit score even when you don’t owe any taxes or didn’t earn any earnings final 12 months. In your 2021 return, you possibly can declare the CTC for any youngsters ages 17 or beneath (in prior years, you would solely declare the credit score for kids beneath 17).

How does the Little one Tax Credit score work?

In 2021, many households acquired advance Little one Tax Credit score funds month-to-month from July by December. Should you acquired these month-to-month funds, it is possible for you to to say the remainder of your Little one Tax Credit score once you file this 12 months.

Like different tax credit, the CTC is efficacious as a result of it reduces your tax invoice on a dollar-for-dollar foundation. For instance, in case your adjusted gross earnings (AGI) was $50,000 in 2021 and also you qualify to say a $6,000 Little one Tax Credit score, the credit score reduces any taxes you owe by $6,000. So, in case your tax invoice seems to be $8,000, your $6,000 credit score would cut back the entire quantity of taxes you owe to $2,000.

To recap, the Little one Tax Credit score is totally refundable this 12 months. So, for instance, when you qualify to obtain a $6,000 CTC, however you solely owe $3,000 in taxes, your tax credit score reduces your invoice to $0, and also you get to pocket the remaining $3,000.

How a lot is the Little one Tax Credit score for tax 12 months 2021?

For the 2021 tax season, the utmost whole credit score quantity elevated from the same old $2,000 per little one to $3,000 per little one ages 6-17 (and as much as $3,600 for kids ages 5 and beneath).

Relying in your tax submitting standing, the elevated credit score of $1,000 or $1,600 begins to section out primarily based in your AGI.

You qualify to say the utmost worth of the Little one Tax Credit score in case your AGI is:

• $75,000 or much less for single filers
• $150,000 or much less for married {couples} submitting collectively
• $112,500 or much less for head-of-household filers

In case your AGI is larger than these limits, you would nonetheless obtain a portion of the elevated tax credit score. In that occasion, the elevated portion of the credit score (both $1,000 or $1,600 per little one) is diminished by $50 for each further $1,000 you earn above the earnings thresholds. For instance, when you file a joint 2021 return, have an AGI of $160,000 and two youngsters 5 and beneath, your full Little one Tax Credit score quantity will seemingly be $6,700.

The unique $2,000 credit score per eligible little one doesn’t start to section out till your AGI exceeds $200,000 (or $400,000 for joint filers).

Do I qualify for the Little one Tax Credit score?

Your eligibility for this tax credit score depends upon your relationship to the kid and the kid’s age. In 2021, the kid you’re claiming the credit score for must be 17 or youthful as of Dec. 31, 2021. Qualifying dependents have to be your son, daughter, adopted little one, foster little one, stepchild, youthful sibling, stepsibling, or a descendent of any of them (comparable to your niece, nephew, or grandchild).

You do not want earnings to say the Little one Tax Credit score in 2021, however you do must have a social safety quantity (SSN) or a person taxpayer identification quantity (ITIN). Any youngsters you declare will need to have a sound SSN.

If the kid doesn’t have a sound SSN however does have an ITIN, you could possibly declare the Credit for Other Dependents. This can be a $500 (non-refundable) credit score for dependents who don’t qualify for the CTC, comparable to dependent mother and father and different relations or dependents residing with you who’re unrelated to you.

When will the Little one Tax Credit score checks be mailed out?

As of proper now, the month-to-month CTC funds won’t be renewed in 2022. Should you acquired the advance month-to-month funds final 12 months, it is possible for you to to say the remainder of your Little one Tax Credit score once you file your 2021 earnings tax return. Should you didn’t obtain the advance funds and will have, it is possible for you to to say your full credit score in your return.

In case your CTC finally ends up being greater than your tax invoice otherwise you don’t owe any taxes, it is possible for you to to say the surplus or full credit score quantity as a part of your tax refund.

The IRS supplies a helpful Where’s My Refund? software on its web site. As soon as your tax return has been accepted, you should utilize this software to trace the standing of your refund to seek out out once you could be getting your verify by mail or by way of direct deposit.

Is the Little one Tax Credit score taxable?

No, the Little one Tax Credit score and any month-to-month advance CTC funds you acquired final 12 months aren’t taxable.

Do you must pay again the Little one Tax Credit score?

Fortunately, most households won’t should pay again the Little one Tax Credit score after they file in 2022, with two attainable exceptions:

1. You skilled a very important enhance in earnings from 2020 to 2021 (we’re speaking tens of hundreds).
2. You might be divorced and normally take turns claiming the Little one Tax Credit score, however the mother or father who claimed the CTC on their 2020 return additionally acquired the advance funds for 2021.

For extra data on these sorts of situations, try our article on how the advance CTC funds would possibly have an effect on your tax return, and by extension, your tax refund.

Do I must report my advance Little one Tax Credit score funds on my 2021 return?

Should you acquired month-to-month CTC funds in 2021, the IRS might be mailing you Letter 6419. Reference this letter when filling out your earnings tax return this 12 months — it’ll enable you evaluate the month-to-month credit score quantities you acquired to the quantity you possibly can appropriately declare in your 2021 tax return. Maintain on to this letter to make sure you obtain the complete quantity of the Little one Tax Credit score you qualify to say!