How will 2021 Child Tax Credit payments affect your refund?

January 26, 2022 : H&R Block

Millions of American families received monthly advance Child Tax Credit payments in 2021. If that included you, you may be wondering how the advance and the other Child Tax Credit changes will affect your 2021 tax return.

Receiving a credit in advance is new territory for many taxpayers. And with that change come questions: What do I need to report my advance payments? How much of the remaining credit can I expect when I file? What if I didn’t get the full amount I should have—or any at all?

In this post, we’ll cover everything you need to know:

Child Tax Credit: Changes and impacts

As part of changes from the March 2021 stimulus bill, the value of the credit as well as the age limit have increased. The CTC is now fully refundable, which means you can receive the credit even if you don’t owe the IRS. 

Based on the new rules, half of the credit was distributed in advance over six months in 2021. According to the IRS, nearly 90% of children in the U.S. were covered by advance payments of the credit.

To understand how the credit could impact your 2021 tax return, read on. For details about the credit itself, review the details section.

Filing impacts

Reporting your advance Child Tax Credit payments

When you file your 2021 return, you’ll need to accurately report how much you received in advanced CTC payments. To help, the IRS is sending you IRS Letter 6419. Be sure to use the amount in the letter as it will help you not only file an accurate return but also help you avoid potential processing delays.

Need more details on the letter or can’t find it? Review our IRS Letter 6419 post for additional information.

Claiming the remaining credit

As you may know, the advance payments covered up to half of your full credit amount. When you file your 2021 return, you’ll need to report any advance received (as mentioned directly above). This will allow you to determine and claim the remaining credit available to you.

Claiming the credit if you didn’t receive the advance

Whether you opted out of payments, or the IRS didn’t have your information to send you payments in the first place, you could still claim a full credit by filing a 2021 tax return. 

Get every credit you deserve

File your taxes to claim any Child Tax Credit due to you. Our tax pros can help you file in person or virtually, or you can file on your own online.

New 2021 Child Tax Credit and advance payment details

Child Tax Credit amounts will be different for each family

  1. Your amount changes based on the age of your children. The payment for children:
    • Ages five and younger is up to $3,600 in total (up to $300 in advance monthly)
    • Ages six to 17 is up to $3,000 in total (up to $250 in advance monthly)
  2. Your amount changes based on your income. You’re eligible for the full amount if your Modified Adjusted Gross Income is under:
    • $150,000 for Married Filing Jointly or Qualified Widow(er)s
    • $112,500 for head of household filers, and
    • $75,000 for single and Married Filing Separate

A portion of your amount is reduced (“phases out”) by $50 for every $1,000 over the limits listed above. 

Those who haven’t filed or have no income are still eligible

The good news is that families don’t have to have income or a filing requirement to be eligible. The IRS has stated that anyone not required to file can file a simplified return to provide their information to the IRS. To do this, you can use H&R Block Free Online to file a simplified return for free.  Or, visit the IRS’ Child Tax Credit site for more information.  

Additionally, your child is eligible if they have a Social Security number even if you don’t have one yourself (i.e., you have an ITIN).  

New 2021 Child Tax Credit and Advance Payment FAQs

I heard I might have to pay some of the credit back. What’s that about?

There are a few times that might happen:

  • Your child is no longer your qualifying child, such as if they are no longer a dependent on your return.
  • Your income increased in 2021 and you no longer qualify for the full amount.
  • You alternate claiming your child with the other parent and should not have received the advance.

Would everyone have to pay the money back?

If your income is below the following thresholds, you’re not required to repay up to $2,000 per qualifying child (i.e. the “safe harbor” amount). 

  • Single: $40,000 
  • Head of Household (HOH): $50,000 
  • Married Filing Jointly (MFJ): $60,000 

The safe harbor is reduced for filers with income between: 

  • Single: $40,000 and $80,000 
  • HOH: $50,000 and $100,000 
  • MFJ: $60,000 and $120,000 

If your income exceeds these thresholds, you will be responsible for repaying the full amount of any overpayment on your tax return. 

I will claim my child on my 2021 return, but the other parent received the advance payments. Can I still claim the full credit?

Yes, you will be able to claim the full amount on your 2021 return even though the other parent received the advance payments. While the child’s other parent should have unenrolled from receiving the advance amounts, that will not affect you claiming it on your return.

What was the previous Child Tax Credit worth?

Previously, the CTC provided $2,000 for each qualifying child under the age of 17 and it was only partially refundable (up to $1,400 for each qualifying child). In addition to the higher amounts mentioned above, children aged 17 are now eligible.

Is the Child Tax Credit subject to offsets?

Advance payments made under these new rules are not subject to offset for past due child support, federal tax debts, state tax debts, and collection of unemployment compensation debts. However, the amount claimed on the taxpayer’s 2021 return as a refund would generally be subject to offset. 

What about residents of Puerto Rico and other U.S. territories?

The new law provides for payments to U.S. territories for the cost of the expanded Child Tax Credit, although the advance payments of the credit didn’t apply. 

For tax years after 2021, residents of Puerto Rico would be able to claim the refundable portion of the child tax credit even if they don’t have three or more qualifying children.  

How long will this new Child Tax Credit be in place?

The American Rescue Plan only guarantees the increased amounts for the 2021 tax year, so unless Congress makes them permanent, they will revert in 2022 to the previous rules of $2,000 per child with up to $1,500 of that amount being refundable. Likewise, the advance payments will only apply to 2021.

Is the Child Tax Credit a loan?

No, the Child Tax Credit is not a loan. It is a refundable tax credit available to American children.   

Get help with the 2021 Child Tax Credit

Need help with reporting your advance payments and claiming your remaining Child Tax Credit for your taxes before or after the tax deadline? We’re here to help! No matter if you file taxes online, or with an H&R Block tax pro, we’re here for you.

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