760 / Who qualifies for 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, 2020 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 under the age of six years old as of December 31, 2021. 17-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% of the 2021 child tax credit during 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% 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 of the expanded child tax credit. Those taxpayers could file Form 1040, Form 1040-SR or Form 1040-NR to provide Social Security numbers, addresses and other information. Those taxpayers were required to write “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

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Planning Point: The IRS Child Tax Credit Update Portal provides information about the client’s eligibility for advance child tax credit payments and information about how those payments are made. Clients can use this portal to set up direct deposit payments, change their bank account information and provide information about any changes to their income. Taxpayers who do not elect direct deposit will receive a paper check. Clients can also use the portal to elect to stop receiving advance payments and instead claim their entire child tax credit in a lump sum when they file their 2021 tax returns. Married couples who elect to unenroll must each separately unenroll. If only one spouse enrolls, the other will continue to receive 50% of the otherwise available monthly child tax credit. Clients may wish to unenroll if they do not anticipate qualifying for the payment based on their 2021 income or if they would prefer to receive a larger tax refund.

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With the exception of 2021, the child tax credit is available for each “qualifying child” (defined below) of eligible taxpayers who meet certain income requirements. The child tax credit is $1,000 ($2,000 for tax years beginning after 2017 and before 2026, see below).²

Additional Rules for Tax Years Beginning After 2017 and Before 2026

An expanded $2,000 child tax credit is available for tax years beginning after 2017 and before 2026 ($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.³ The $1,400 refundable is indexed for inflation and rounded to the next multiple of $100 ($1,700 for 2024, see Editor’s Note, above).⁴