Child Tax Credit: What You Need to Know

Posted on November 07, 2021

The child tax credit allows low- and medium-income families to reduce their tax liability for each qualifying child. In March 2021, the child tax credit was significantly expanded thanks to the American Rescue Plan Act of 2021. The 2021 credit is also fully refundable, unlike the 2020 credit, which was only partially refundable.

Do I qualify for the child tax credit?

If you are eligible for the credit, you can decrease your tax liability on a dollar-for-dollar basis. However, your family and child must meet specific criteria. The IRS has seven top requirements for child tax credit eligibility. They are:

Your family passes the family income test. If you are single, your income must be less than $75,000. If you are the head of the household, you must earn less than $112,500. For joint returns, the family must earn less than $150,000.
The child must have been claimed as a dependent on your tax return.
The child must be a U.S. citizen, a U.S national, or a U.S. resident alien.
The child must be under the age of 18 at the end of the tax year.
The child must have lived with you for more than half of the tax year. Exceptions apply, such as the child’s absences were for special circumstances like juvenile detention, military service, school, or vacation.
The child must be your own child, a foster child, or a stepchild. This includes a legally adopted child. The child may also be a sibling, a stepbrother, or a stepsister.
The child does not provide for their own financial support.

How much do I get per child?

Before 2021, the child tax credit was $2000 for each qualifying child. For 2021, the child tax credit per child under the age of six is $3,600, and the credit for children under 18 is $3,000. However, the size of the credit only applies to 2021. There is no news on whether this will apply to next year.

The credit is not only fully refundable but can be received as an advance payment. In the past, payments were a partial advance that you could claim on next year’s tax return. Because of the impacts of the global pandemic, qualifying families may get half of the credit early through monthly advance payments.

Can I opt-out of advance monthly payments?

You may not want to get a part of the credit early because you qualified for the child tax credit but are no longer eligible in 2021. This can happen if you are no longer classified as a low- to the medium-income taxpayer, your child has aged out, or there have been changes in the number of children you have that qualify. Therefore, not opting out of advance payments could mean that you may have to repay the money you received when it’s time to file your tax returns in 2022. It could also mean a smaller refund.

You can opt out of receiving the credit early through the IRS child tax credit update portal, where there is the option to unenroll.

Claiming the child tax credit may be a way for you to reduce your tax liability, particularly if you’re facing tax issues. For help with tax resolution, contact us at 206-970-4477 and let us help you with your tax problems. Talk with a Tax Resolution Expert today.