2021 Child Tax Credit & Advance Payments

The American Rescue Plan Act of 2021 increased the amount of the CTC for the 2021 tax year only for most taxpayers. For 2021, the credit amount is:

• $3,000, for qualifying children between age 6 to 17 years old
• $3,600, for qualifying children age 5 and under.

The increased amounts are reduced (phased out), for modified adjusted gross income (AGI) over:

• $150,000 for married taxpayers filing a joint return and qualifying widows or widowers,
• $112,500 for heads of household, and
• $75,000 for all other taxpayers.

The amount of the payments will phase out by $50 for every $1,000 (or fraction thereof) by which modified AGI exceeds the applicable threshold listed above based on your filing status.

For purposes of the CTC and advance CTC payments, your modified AGI is your adjusted gross income (from the 2020 IRS Form 1040, line 11, or the 2019 IRS Form 1040, line 8b), plus the following amounts that may apply to you.

• Any amount on line 45 or line 50 of the 2020 or 2019 IRS Form 2555, Foreign Earned Income.
• Any amount excluded from gross income because it was received from sources in Puerto Rico or American Samoa.

If you do not have any of the above, your modified AGI is the same as your AGI.

In addition, the term “qualifying child” is broadened to include a qualifying child who has not attained the age of 18 (in other years, a qualifying child is one who has not attained the age of 17 by the end of the calendar year).

Also, for the 2021 tax year only, the CTC is made fully refundable for taxpayers with a principal place of abode in the United States for more than one half of the tax year or taxpayers who are bona fide residents of Puerto Rico. Other taxpayers living in U.S. Territories, must claim the credit through those Territory processes.

For many taxpayers, the IRS issued advance CTC payments of up to 50 percent of the total estimated CTC, monthly, between July and December 2021, unless you took action to unenroll.

To qualify for CTC for 2021, you and any other family members claimed, such as your spouse or qualifying child, must have a Social Security number (SSN) that is valid for employment in the United States. (See IRS Topic B: Eligibility for Advance Child Tax Credit Payments and the 2021 Child Tax Credit for more information about SSNs and Topic I: U.S. Territory Residents and Advance Child Tax Credit Payments.)

Modified AGI and Phaseouts

The CTC begins to be reduced to $2,000 per child if your modified AGI in 2021 exceeds:

• $150,000 if married and filing a joint return or if filing as a qualifying widow or widower;
• $112,500 if filing as head of household; or
• $75,000 if you are a single filer or are married and filing a separate return.

The first phaseout reduces the CTC by $50 for each $1,000 (or fraction thereof) by which your modified AGI exceeds the income threshold described above that is applicable to you. The CTC won’t begin to be reduced below $2,000 per child until your modified AGI in 2021 exceeds:

• $400,000 if married and filing a joint return; or
• $200,000 for all other filing statuses.

The second phaseout reduces the CTC by $50 for each $1,000 (or fraction thereof) by which your modified AGI exceeds the income threshold described above that is applicable to you.

For more details about Modified AGI and the credit phaseout, see Topic C: Calculation of the 2021 Child Tax Credit.

Qualifying Child

• In general, a child qualifies you for the CTC if the child meets all of the following conditions:
  • The child is your son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of any of them (for example, your grandchild, niece, or nephew). Adopted children qualify too.
  • The child was under age 18 at the end of 2021.
  • The child does not provide over half of his or her own support for 2021.
  • The child lived with you for more than half of 2021.
  • The child is claimed as a dependent on your return. See Pub. 501, Dependents, Standard Deduction, and Filing Information, for more information about claiming someone as a dependent.
  • The child does not file a joint return for the year (or files it only to claim a refund of withheld income tax or estimated tax paid).
  • The child was a U.S. citizen, U.S. national, or U.S. resident alien. For more information, see Pub. 519, U.S. Tax Guide for Aliens.

There are special rules and exceptions that may apply to the above list. See Publication 972, Child Tax Credit and Credit for Other Dependents, for the full rules.

Claiming the Credit

Eligible taxpayers will generally claim the credit for tax year 2021, on the Form 1040 series income tax return. Puerto Rico residents will claim the credit using Form 1040-PR, Form 1040-SS, or other 1040 series form. Taxpayers living in other U.S Territories must follow the instructions from their territory tax agency.

All taxpayers who received advance payment of this credit, must file a tax return, to claim the CTC and reconcile the amount they received in advance versus the total amount for which they qualify. The IRS mailed Letter 6419 to inform you of your total Advanced CTC and where it should be included on the 8812.  If you did not receive the Letter 6419 or you have lost your letter you can go to your on-line portal to view your Advanced Child Tax Credit Payment. This will be required whether you have a regular requirement to file a tax return or not.

For more details on claiming the credit and reconciling advance payments for the 2021 tax year, see IRS’s Advance Child Tax Credit Payments in 2021 page, the FAQs located there, and the 2021 Form 1040 series income tax return instructions when they are published.

Everyone who received advance CTC payments, must reconcile the amount of advance payments against the amount of total CTC for which they are eligible on their 2021 individual income tax return. Instructions for doing this was included in the 2021 individual tax return instructions and on the IRS’s Advance Child Tax Credit Payments in 2021 page. See also, Topic H: Reconciling Your Advance Child Tax Credit Payments on Your 2021 Tax Return.

• If the amount of your CTC exceeds the total amount of your advance CTC payments, you can claim the remaining amount of your CTC on your 2021 tax return.
• If you receive a total amount of advance CTC payments that exceeds the amount of CTC that you can properly claim on your 2021 tax return, you may need to repay to the IRS some or all of that excess payment.

What if I need to repay an amount?

• If you qualify for the repayment protection described below, you will be excused from repaying some or all of the excess amount.
• If you do not qualify for repayment protection, you will need to report the entire excess amount on your 2021 tax return as additional income tax. This additional income tax will reduce the amount of your tax refund or increase your total tax due for 2021.

You qualify for full repayment protection and won’t need to repay any excess amount if your main home was in the United States for more than half of 2021 and your modified AGI for 2021 is at or below the following amount based on the filing status on your 2021 tax return:

• $60,000 if you are married and filing a joint return or if filing as a qualifying widow or widower;
• $50,000 if you are filing as head of household; and
• $40,000 if you are a single filer or are married and filing a separate return.

Your repayment protection may be limited if your modified AGI exceeds these amounts or your main home was not in the United States for more than half of 2021.

If you qualify for repayment protection, the amount of your tax liability from excess advance CTC payments is reduced by up to the full repayment protection amount. The full repayment protection amount equals $2,000, multiplied by the following:

• The number of qualifying children that the IRS took into account in determining the IRS’s initial estimate of your advance CTC payments, minus
• The number of qualifying children properly taken into account in determining the allowed CTC amount on your 2021 tax return.

The Taxpayer Advocate Service is an independent organization within the IRS that helps taxpayers and protects taxpayers’ rights. We can offer you help if your tax problem is causing a financial difficulty, you’ve tried and been unable to resolve your issue with the IRS, or you believe an IRS system, process, or procedure just isn’t working as it should. If you qualify for our assistance, which is always free, we will do everything possible to help you.

Visit www.taxpayeradvocate.irs.gov or call 1-877-777-4778.

Low Income Taxpayer Clinics (LITCs) are independent from the IRS and TAS. LITCs represent individuals whose income is below a certain level and who need to resolve tax problems with the IRS. LITCs can represent taxpayers in audits, appeals, and tax collection disputes before the IRS and in court. In addition, LITCs can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Services are offered for free or a small fee. For more information or to find an LITC near you, see the LITC page on the TAS website or Publication 4134, Low Income Taxpayer Clinic List.