Qualifying for the Higher Credit Amount

The enhanced tax break begins to phase out at modified AGIs of $75,000 on single returns, $112,500 on head-of-household returns and $150,000 on joint returns. The amount of the credit is reduced by $50 for each $1,000 (or fraction thereof) of modified AGI over the applicable threshold amount. Note that this phaseout is limited to the $1,000 or $1,600 temporary increased credit for 2021 and not to the $2,000 credit.

For example, if a married couple has one child who is four years old, files a joint return, and has a modified AGI of $160,000 for 2021, they don’t get the full $3,600 enhanced credit. Instead, since their modified AGI is $10,000 above the phase-out threshold for joint filers ($150,000), their credit is reduced by $500 ($50 x 10) – resulting in a final 2021 credit of $3,100.

And remember, many families who aren’t eligible for the higher child tax credit may still claim the $2,000 per-child credit when they file their 2021 tax return.

Additional Phase-Out

Question: If my 2021 income is higher than the thresholds for taking the $3,000 or $3,600 per-child tax credit, can I still claim the $2,000-per-child credit on my 2021 return?

Answer: It depends. Families who aren’t eligible for the $3,000 or $3,600 credit in 2021, but who have modified AGIs at or below $400,000 on joint returns or $200,000 on other returns, can claim on their 2021 returns the regular credit of $2,000 per child, less the amount of any advance payments they get. Families with modified AGIs above the $400,000/$200,000 thresholds will see the $2,000 per-child credit reduced by $50 for each $1,000 (or fraction thereof) of modified AGI over those thresholds.

For example, a married couple with a seven-year-old son who file a joint return and have modified AGI of $415,000 for 2021 won’t get the full $3,000 enhanced credit. First, because of their high income, they don’t qualify for the extra $1,000 (see question above), so their credit is reduced to the regular amount of $2,000. Then, since their modified AGI is $15,000 above the second phase-out threshold for joint filers ($400,000), their credit is reduced again by $750 ($50 x 15) – resulting in a final 2021 credit of $1,250.

Fully Refundable

Answer: For the 2021 tax year, the expanded child tax credit is fully refundable for families who live in the United States for more than one half of the year. Before this change, certain low-income people could only get up to $1,400 per child as a refund, instead of the full $2,000 child credit, if their child credit payday loans Vermont exceeded the taxes they otherwise owed. Under the rules for 2021, people who qualify for a child tax credit can receive the full credit as a refund, even if they have no tax liability.

Parents don’t need to be employed or otherwise have earnings to claim the child credit for 2021. Prior-year rules limited the credit to families having at least $2,500 of earned income. For 2021, families with no earned income can take the child credit if they meet all the other rules.

Advance Payments

Answer: The advance payments generally accounted for half of a family’s 2021 child tax credit. In 2021, the IRS sent out six monthly payments from mid-ilies who didn’t opt out of the payments. The IRS generally based eligibility for the credit and advance payments, and calculated the amount of the payment, based on your 2020 return. The IRS also set forth procedures for families who weren’t otherwise required to file a tax return in 2020 to get advance payments.