The Child Tax Credit is a great way to get some money back from the government every year for your kids, but figuring out all the details can be  confusing. In 2021, it’s been hard to keep up with all the changes in the tax code, especially with all the changes to Child Tax Credit.

Flossie’s got you covered. This post will walk through how the advance payments and your tax return work together, how the credit will impact your refund, what’s happening in 2022 and what that letter from the IRS really means (even if you tossed it).

The IRS often releases new info during tax season, so we’ll keep this updated. Feel free to email claire@askflossie.com if you have a question not answered here. I’m an IRS-certified tax preparer and will answer you. 🙂

And, check out our new post on the Charity Tax Deduction Rules for 2020 and 2021. Everyone gets a break!

What Is The 2021 Child Tax Credit?

The child tax credit is a government program that gives you money back every year for your kids. In 2021, there were a lot of changes to the child tax credit, so it can be confusing to figure out how it works. In 2021, the credit changed in a two important ways:

  • The credit per kid amount increased 
  • Half the credit was paid in advance each month from January – December, unless a family opted out
  • The earned income thresholds changed
  • The credit is fully refundable

Adding up these changes means more people qualify for the child tax credit in 2021 than ever before. These changes go away in 2022.

How Much Is The 2021 Child Tax Credit?

The child tax credit can be worth up to to $3000 per child under 18 and $3600 for kids under 6.

The Child Tax Credit is reduced as your income increases. In 2021, the credit will be reduced in two steps, based on your modified adjusted gross income (AGI).

The first phaseout can reduce the Child Tax Credit to $2,000 per child, if your modified AGI in 2021 exceeds:

If your modified AGI is more than the income threshold described above, your Child Tax Credit will be reduced by $50 for every $1,000 (or fraction thereof).

The second phaseout can reduce the remaining Child Tax Credit below $2,000 per child, until your modified AGI in 2021 exceeds:

  • $400,000 if married filing jointly
  • $200,000 for all other filers

The second phaseout reduces the Child Tax Credit by $50 for each $1,000 (or fraction thereof).

Who is eligible for the 2021 Child Tax Credit?

In order to quality for child tax credit you must meet all of the following criteria:

  • You child must be a U.S. citizen, a U.S. national or a U.S. resident alien
  • Your child must have lived with you for more than half of the year
  • You child can not provide over half their own support for the year
  • You child must be younger than 18 at the end of 2021

How to apply for the credit

In 2021, there were two ways to receive the Child Tax Credit: advance payments, which were automagically mailed out by the IRS or as a refundable credit on your tax return in April 2022.  This means that if your child tax credit is greater than the total income taxes you owe, the child tax credit becomes a refund and gets paid back to you.

I’m not going to go into applying for advance payments, because that option is ending for 2022. Thanks, Joe Manchin!

How to claim the child tax credit on your tax return

The child tax credit is a refundable credit, which means it will pay back to you any excess. For example, if your child tax credits are worth more than the total income taxes you owe, you get the difference back as a child tax credit on your tax return.

How does advance child tax credit work? (Monthly Payment)

In 2021, child tax credits were advance child tax credits, which meant part of the child tax credit were mailed out or direct deposited each month from January – December.

The child tax credit was paid out in monthly chunks, which totaled to 50% of the anticipated child tax credit. So, advance payments for a 12-year-old would have amounted to $250, while the monthly payment for her 3-year-old sister would have been $300.

Let’s just pause for a second: do you know any parent who couldn’t use an extra $300 a month for a child not yet in school? 91% of these payments went to basic necessities, among lower income families.

Reconcile Your Advance Child Tax Credit Payments with 2021 Tax Return

When you file your 2021 tax return, you will need to compare the amount of Child Tax Credit payments that you received during 2021 with the amount of the Child Tax Credit that you can claim on your return.

Excess Total Credit (Good!): If the amount of your total Credit exceeds the total amount of your advance payments, you can claim the remaining amount of your Child Tax Credit on your 2021 tax return. If you were getting a refund, this will increase your refund. 

Excess Advance Payment (Bad, but unlikely):

If you received more Child Tax Credit payments than you can claim on your 2021 taxes, you may need to pay some of that money back to the IRS. Read more about the safe harbor rule in the next section.

The IRS will send you a letter in January 2022 that tells you how much money the IRS gave to you for the Child Tax Credit during 2021 (Letter 6419). Keep this letter with your tax records. You might need it when you file your 2021 tax return during the 2022 tax filing season.

Am I Going To Have To Pay Back the Advance Payments?

Probably not. A lot of people are worried about the advance payments of the Child Tax Credit, but fortunately, the program was designed with safeguards to prevent overpayment.

First, only half the anticipated credit went out in advance payments. So most filers can still expect the other half to be included in their refund. Second, and more important, many filers are fully protected and other benefit from the Safe Harbor limit for overpayment.

Lower Income Filers Are Fully Protected 

You will not have to repay any of the money you received from the Child Tax Credit advance payment if you lived in the United States for more than half of 2021 and the income on your 2021 tax return was below a certain level:

  • $60,000 for married filing jointly
  • $50,000 for head of household
  • $40,000 for single or married filing separately

If your modified AGI exceeds these amounts or if your main home was overseas more than half of 2021, your repayment protection may be limited or phased out entirely.

Safe Harbor Calculations (AKA “Repayment Protection”)

If your modified AGI exceeds these amounts or you lived abroad most of the year, your protection may be reduced. This is your safe harbor amount, and IRS calculates the Safe Harbor limit generously because they can’t account for all those COVID babies.

Here’s how it works:

Everyone has a different safe harbor amount, based on your AGI, number of kids, and how many kids the IRS guessed you have. If you were overpaid less than your Safe Harbor limit, you do not have to pay anything back.

The Safe Harbor amount equals $2,000, multiplied by :

  • The number of kids the IRS calculated you have for the advance payments, minus
  • The number of kids you claim the credit for on your 2021 tax return.

It’s fucking weird math, and the form is like 4 pages, but Turbotax (etc.) should be able to calculate it.

For example, a married couple with an AGI of $75,000 has a Safe Harbor limit of $3000. If the IRS overpaid them by $2000, they should not have to pay it back.

No Overpayment Protection for Higher Income Filers

Based on your 2021 tax return, if your modified AGI is at or above this higher amount, you don’t get repayment protection or qualify for safe harbor.

  • $120,000 for married filing jointly / qualifying widow
  • $100,000 for head of household
  • $80,000 for single or married filing separately

Who Will Have to Pay It Back?

There is one case I can think of, where eligibility for the credit might go poof: Divorced parents who trade off declaring the kids as dependents need to be careful.

If you declared your kids on your 2020 taxes and received advanced payments, but aren’t declaring them this year, you might have an overpayment issue. The Safe Harbor still applies. 

Additionally, if your kids aged out of the Credit or the higher threshold for kids under six, you might want to keep a close eye on the calculation. The IRS should have taken this into account in calculating your payments.

Or, you moved out of the country. The IRS doesn’t love you anymore.

A New Baby! Child Tax Credit For Babies Born In 2021

First, Yay! I love babies even when they don’t come with $3600.

A child born or legally adopted before December 31, 2021 qualifies for the child tax credit. If you had a baby last year, the IRS would not have sent you advance payments prior unless you applied.

This means your 2021 taxes will include $3600 in refundable credit. Additionally, if you are a single mom and this is your first child, welcome to the Head of Household filing status!

Foster and Adopted Child Tax Credit Rules

The IRS considered non-traditional families in this one. Foster kids are in! Any child you can claim as a dependent, even if they are not related to you, is eligible for the child tax credit, if they meet the age, dependent and residency rules (above)

Adopted kids qualify for child tax credit under the same rules. This child must be legally adopted before December 31, 2021 or be an eligible foster child

Will Child Tax Credit Continue In 2022?

Legislation to extend the higher credit amount and advance payment structure was killed by Senate Republicans and one Democratic Senator – Joe Manchin. For now, the child tax credit for the 2022 tax year goes back down to $2,000 per qualifying dependent, partially refundable, and only accessible during tax time.

Tax Activism: Joe Manchin Is A Turd And What You Can Do About It

Joe Manchin is a “Democrat” Senator from West Virginia and during the debate to make the larger credits permanent, he voted against it, despite overwhelming support for the extension among American parents.

I get REAL salty when I hear people talk about how the Child Tax Credit disincentivizes work and benefits rich people. Multiple studies have demonstrated its positive impact on child poverty, child food security, child learning and development. 91% of low income families who receive it, use it for basic necessities.

I do taxes for free in a working class community and the Child Tax Credit is a big deal here. For many families with small children, it is a lifeline, even for people working 2-3 jobs to keep their families fed.

What can you do about it if you don’t live in West Virginia? Make sure your candidates will protect this important credit and want to make it fully refundable.

Child Tax Credit FAQs

There is a lot of misinformation out there about the child tax credit. I could answer these questions for days, but here are a few of the big ones.

Should I Expect A Smaller Refund If I Got Child Tax Credit Checks?

Absolutely.

Many families saw child tax credit advance payments, even if they didn’t apply for it. Those checks means reduce the amount of the credit on your taxes. The child tax check is supposed to be a refund of your estimated child tax credit refundable, not the entire amount you are entitled to.

Where’s My Missing Child Tax Credit?

You can check out the IRS’s Child Tax Credit Update Portal to see what they have recorded for you.

Halp! I GOT An Irs Letter About The Child Tax Credit! (Letter 6419)

This year, people who received stimulus or advance child tax credit payments in 2021 received letters with a summary of those payments in January. I expect half my clients to lose these letters, because they are not obvious tax forms.  

Halp! I LOST My Child Tax Credit Letter (Letter 6419)!

You and everyone else lost this letter! Fear not! You can either calculate it or look at your bank deposits.

Still Get The Child Tax Credit If Child Turns 18 In 2021?

Nope. No Credit for you!

Where Can I Get Help?

There are lots of ways to get free taxes prep and advice. I always direct people to reach out to their local VITA program, where they can take advantage of FREE advice, from certified volunteer nerds like me!