8566 / When is a taxpayer entitled to claim the child tax credit?

Editor’s Note: The ARPA expanded and enhanced the child tax credit for the 2021 tax year. For tax years beginning after December 31, 2021 and before January 1, 2022, the child tax credit amount increased from $2,000 to $3,000 per qualifying child. The credit amount was also fully refundable for the 2021 tax year only (under TCJA, $1,400 was refundable, see below). The $3,000 amount was also increased to $3,600 per qualifying child who was under the age of six years old as of December 31, 2021. Seventeen-year-olds were treated as qualifying children in 2021. The income phaseout ranges for the enhanced tax credit were also reduced. The phaseout began at $150,000 for married taxpayers filing jointly and $75,000 for single filers (down from $400,000 and $200,000 for the standard child tax credit). Additionally, the IRS paid 50 percent of the 2021 child tax credit in the second half of 2021, using 2020 tax data (although the amounts were subject to clawback in cases where the taxpayer did not qualify using 2021 tax information).

Eligible taxpayers were not required to take any action to receive the advance payments on the 15th of every month. Monthly payments totaled up to $300 for each child under age six and up to $250 per month for each child aged six and older. Depending upon the information the IRS had on file, payments were made via direct deposit, paper checks or debit cards. The advance payments totaled up to 50 percent of the amount the taxpayer was eligible to receive based on 2020 filing information. According to IRS guidance, taxpayers who were not otherwise required to file tax returns for 2020 could file simplified 2020 returns to receive monthly advance payments. Those taxpayers filed Form 1040, Form 1040-SR or Form 1040-NR to provide Social Security numbers, addresses and other information, writing “Rev. Proc. 2021-24” on the forms. Taxpayers who had $0 in adjusted gross income (AGI) reported $1 in AGI in order to file electronically and qualify for advance payments.¹ As of the date of this publication, the advance payment system has not been extended for 2022 and beyond.

The 2017 tax reform legislation eliminated the personal exemption (and the dependency exemption) and expanded the previously available child tax credit. Under the Act, the child tax credit is increased to $2,000 (from $1,000) per child under age 17; $1,400 of this per-child credit is refundable. The taxpayer must include the Social Security number for each child for which the refundable portion of the child tax credit is claimed.² The $1,400 refundable amount will be indexed for inflation and rounded to the next multiple of $100 (the amount for 2020 remained at $1,400, but see Editor’s Note, above).³