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Millions of American families received monthly advance child tax credit (CTC) payments between July and December of 2021. These advance payments were meant to cover half of your CTC for the 2021 tax year, with the remaining credits claimable on your 2021 tax return.
For most families, that means additional credits are coming their way at tax time. But for some, the situation may be reversed: You may have to pay back some or all of your advance CTC money if your income or other qualifying information has changed. Here's a quick look at how this might happen.
Reasons You May Need to Repay the 2021 Child Tax Credit
Advance CTC payments were issued based on information in your 2020 or 2019 tax return. However, your actual eligibility for credits is based on your 2021 tax return. Here are three common reasons you might be entitled to less than expected:
- Your income increased. If your 2021 income exceeded IRS income thresholds (more on this below), your CTC may be reduced or eliminated.
- You have fewer qualifying dependent children. A typical scenario: You claimed your daughter as a dependent on your 2020 taxes but your co-parent will claim her on their 2021 taxes. You may have received CTC payments in 2021, but the parent who claims your child on their 2021 taxes gets the actual credit.
- You lived outside the U.S. for more than half of 2021. You must live in the U.S. for at least half the year to be eligible for 2021 expanded credits.
How Child Tax Credit Repayment Works
You'll do official calculations as part of your 2021 tax return, using Schedule 8812. For planning purposes, use these six steps to estimate whether you'll need to pay back money:
1. Verify the Child Tax Credit Payments You've Received
In January, the IRS sent Letter 6419, showing the amount of advance CTC payments you received from July through December of 2021. If you've misplaced the IRS letter, access your tax file for free at the IRS' Get Your Tax Record site.
2. Estimate Your Modified Adjusted Gross Income for 2021
Your adjusted gross income (AGI) is your gross income (wages, dividends, capital gains, business income, retirement distributions and so on) minus student loan interest, alimony you paid, educator expenses or retirement plan contributions. Your AGI is calculated on line 11 of IRS Form 1040.
For CTC purposes, your modified adjusted gross income (MAGI) adds in foreign earned income and any income from Puerto Rico or American Samoa. If you didn't have income from these sources, your AGI and your MAGI are the same.
Step 3: Calculate Your 2021 CTC
The American Rescue Plan Act temporarily increased the child tax credit in 2021 from $2,000 per qualifying child to:
- $3,600 for children ages 5 and under at the end of 2021
- $3,000 for children ages 6 to 17 at the end of 2021
Suppose you have two children, ages 3 and 7. If you met income and other qualifications, your 2021 CTC would be $3,600 + $3,000 = $6,600.
To qualify for the full credits shown above, your MAGI must be less than:
- $150,000 if married and filing a joint return or a qualifying widow or widower
- $112,500 if filing as head of household
- $75,000 if you are a single filer or are married and filing a separate return
What if your income exceeds these limits? A phase-out range reduces the CTC by $50 for each $1,000 (or fraction thereof) your income exceeds the threshold. If you filed as head of household and your 2021 MAGI was $120,000—$7,500 over the limit—your credit would be reduced by $50 x 8 = $400. Using our example above, your CTC would be $6,600 - $400 = $6,200.
Your CTC holds at $2,000 per qualifying child unless a second phase-out kicks in: If your income is above $400,000 for a married couple filing jointly or $200,000 for all other filing statuses, your CTC again drops by $50 for each $1,000. So, if your income soared to $250,000 in 2021, your CTC would be $4,000 ($2,000 for each child) minus (50 x $50 = $2,500), or $1,500.
Additionally, you must repay any advance CTC payments you received for a child who isn't claimed as a dependent on your 2021 tax return. And if you lived outside the U.S. for more than half the year, you may still qualify for the regular CTC of $2,000 per child, but not for the 2021 expanded credits.
Step 4: Compare Your Credit With Advance Payments You've Received
Following our example above, here's how your credits would net out:
Advance CTC payments received:
6 payments of $300 (for the child age 3)
6 payments of $250 (for the child age 7)
Total advance payments received:
|CTC allowed based on income:||$1,500|
|Amount you must repay:||$1,800|
Step 5: See if You're Eligible for Repayment Protection
You may be eligible for repayment protection that reduces or eliminates the amount you owe, provided you lived in the U.S. for more than half the year and meet IRS income requirements. Learn more about repayment protections on the IRS Child Tax Credit Reconciliation page.
Step 6: Include Repayment in Your 2021 Tax Return Calculations
Any amount you need to repay will either reduce your refund or result in an additional tax bill. Consider financing a large tax bill using savings, a credit card or a personal loan. You may also work out a payment plan with the IRS, though this may cost you in penalties and interest.
Child Tax Credits for 2022
Expanded CTC and monthly advance payments ended in 2021: Child tax credits have now reverted to $2,000 per child, as they were prior to last year. Congress may bring back expanded CTC and advance payments, but efforts to pass these measures have stalled so far.