February 07, 2023
The Advance Child Tax Credit was a provision of the American Rescue Plan of 2021. From July through December 2021, eligible taxpayers with dependents under age 18 received half the total tax credit as monthly payouts.
Advancing the payments was a part of expanding the child tax credit from $2,000 per child to $3,600 for children under age 6 and $3,000 for children ages 6 to 17.
Parents received up to $250 per month, per child ages 6-17 and $300 per child ages 6 and under. The remaining half of the child tax credit will be paid out once the dependent's caregiver files their 2021 tax return.
Read on to learn more about who is eligible for the tax credit and what to do if you didn't receive your monthly payments.
Purpose of the Advance Child Tax Credit
The goal of the Advance Child Tax Credit was to help families with children cover necessary expenses, such as childcare or education. Additionally, the payments were not taxable.
Payments went to an estimated 36 million families and were designed to help struggling families make ends meet. As work moved from remote due to the pandemic back to in-person, many parents needed to return their child to daycare or find in-home help with remote learning for their child.
In a way, the monthly checks served as incentive checks to provide legal guardians the money they would receive during tax season anyway but allowing them to use that money throughout the year.
To get the second half of the $3,000 or $3,600, eligible parents must file their 2021 tax return. And if for some reason you did not receive these advanced child tax credit payments, you can get them as a lump sum in your tax return.
Who is Eligible?
Eligibility for the Advance Child Tax Credit is based on both the type of dependent and the total household income.
Eligible dependents include:
- Son or daughter
- Eligible foster child
- Brother or sister
- Stepbrother or stepsister
- Half-brother or half-sister
- Descendants, such as a grandchild, niece, or nephew
The child must not make more than half of the income required to support themselves and must live with the adult for more than half of the 2021 tax year. To receive the child tax credit, the taxpayer must be able to properly claim the dependent based on Publication 972.
Income eligibility includes those with an adjusted gross income that falls into the following categories.
- Individual taxpayers making $75,000 a year or less
- Heads of households making $112,000 a year or less
- Married taxpayers filing jointly or widows/widowers making $150,000 a year or less
However, households making more than that can still be eligible for partial credit. For every additional $1,000 of total adjusted gross income your household earns, the child tax credit is reduced by $50. The credit for children ages 6-17 phases out completely once individuals earn $95,000 or married couples filing jointly make $170,000.
Married couples filing jointly that make up to $400,000 a year can still claim the standard $2,000 tax credit, so can individual taxpayers making $200,000 or more.
What if Eligible Taxpayers Didn’t Receive Monthly Payments?
A challenge the Internal Revenue Service (IRS) faces is that estimated payments were based on 2020 income. Families who experienced changes to income in 2021 might not have received monthly payments, despite being eligible.
At this point, the best thing to do is work with your tax advisor to prepare your 2022 tax return. You’ll get the full child tax credit as a lump sum in your tax return if you missed some of the payments.
Or, if you only received partial payments because you set up direct deposit or informed the IRS of your eligibility mid-year, you’ll get all remaining money once you’ve completed your filing.
Eligible taxpayers who did not want to receive the monthly child tax credit had the option to opt-out. A reason for opting out might be because the taxpayer knows their income now exceeds that of the eligibility requirements for the child tax credit or that they would prefer to receive the money as a lump sum at the time of filing their taxes.
Both taxpayers for married couples filing jointly had to opt-out by the end of the month prior to the upcoming payment. So for payments, the IRS delivered July 15, the opt-out deadline was June 28.
If you chose to opt-out but later became eligible or were planning to delay these payments, talk to your tax advisor about how to ensure you get all eligible tax credits in your return.
The IRS provides a resource center with FAQs on the child tax credit to help answer common questions about eligibility, claiming the credit, how to include payments in your tax filing, and more. But if you have specific questions, reach out to Sunset Finance. We’ll help guide you through the 2022 tax filing process and ensure you maximize your return.
Taxes can be overwhelming. That's why we've created the Sunset Finance Guide to Tax Returns to provide more information.
*subject to our most liberal credit policies and IRS acceptance of your return.
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