Taxes

Everything You Need to Know About the Child Tax Credit

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Raising kids is expensive. Thankfully, becoming a parent comes with some valuable tax breaks — most notably, the Child Tax Credit (CTC).

What is the Child Tax Credit?

The CTC is a tax credit for parents of dependent children designed to help offset the cost of raising kids.

For tax year 2021, the CTC is fully refundable, meaning you can claim this tax credit even if you do not owe any taxes or didn’t earn any income last year. On your 2021 return, you can claim the CTC for any children ages 17 or under (in prior years, you could only claim the credit for children under 17).

How does the Child Tax Credit work?

In 2021, many families received advance Child Tax Credit payments monthly from July through December. If you received these monthly payments, you will be able to claim the rest of your Child Tax Credit when you file this year.

Like other tax credits, the CTC is valuable because it reduces your tax bill on a dollar-for-dollar basis. For example, if your adjusted gross income (AGI) was $50,000 in 2021 and you qualify to claim a $6,000 Child Tax Credit, the credit reduces any taxes you owe by $6,000. So, if your tax bill turns out to be $8,000, your $6,000 credit would reduce the total amount of taxes you owe to $2,000.

To recap, the Child Tax Credit is fully refundable this year. So, for example, if you qualify to receive a $6,000 CTC, but you only owe $3,000 in taxes, your tax credit reduces your bill to $0, and you get to pocket the remaining $3,000.

How much is the Child Tax Credit for tax year 2021?

For the 2021 tax season, the maximum total credit amount increased from the usual $2,000 per child to $3,000 per child ages 6-17 (and up to $3,600 for children ages 5 and under).

Depending on your tax filing status, the increased credit of $1,000 or $1,600 begins to phase out based on your AGI.

You qualify to claim the maximum value of the Child Tax Credit if your AGI is:

  • $75,000 or less for single filers
  • $150,000 or less for married couples filing jointly
  • $112,500 or less for head-of-household filers

If your AGI is higher than those limits, you could still receive a portion of the increased tax credit. In that event, the increased portion of the credit (either $1,000 or $1,600 per child) is reduced by $50 for every extra $1,000 you earn above the income thresholds. For example, if you file a joint 2021 return, have an AGI of $160,000 and two children 5 and under, your full Child Tax Credit amount will likely be $6,700.

The original $2,000 credit per eligible child doesn’t begin to phase out until your AGI exceeds $200,000 (or $400,000 for joint filers).

Do I qualify for the Child Tax Credit?

Your eligibility for this tax credit depends on your relationship to the child and the child’s age. In 2021, the child you are claiming the credit for needs to be 17 or younger as of Dec. 31, 2021. Qualifying dependents must be your son, daughter, adopted child, foster child, stepchild, younger sibling, stepsibling, or a descendent of any of them (such as your niece, nephew, or grandchild).

You do not need earnings to claim the Child Tax Credit in 2021, but you do need to have a social security number (SSN) or an individual taxpayer identification number (ITIN). Any children you claim must have a valid SSN.

If the child does not have a valid SSN but does have an ITIN, you may be able to claim the Credit for Other Dependents. This is a $500 (non-refundable) credit for dependents who do not qualify for the CTC, such as dependent parents and other relatives or dependents living with you who are unrelated to you.

When will the Child Tax Credit checks be mailed out?

As of right now, the monthly CTC payments will not be renewed in 2022. If you received the advance monthly payments last year, you will be able to claim the rest of your Child Tax Credit when you file your 2021 income tax return. If you did not receive the advance payments and should have, you will be able to claim your full credit on your return.

If your CTC ends up being more than your tax bill or you don’t owe any taxes, you will be able to claim the excess or full credit amount as part of your tax refund.

The IRS provides a useful Where’s My Refund? tool on its website. Once your tax return has been accepted, you can use this tool to track the status of your refund to find out when you might be getting your check by mail or via direct deposit.

Is the Child Tax Credit taxable?

No, the Child Tax Credit and any monthly advance CTC payments you received last year are not taxable.

Do you have to pay back the Child Tax Credit?

Thankfully, most families will not have to pay back the Child Tax Credit when they file in 2022, with two possible exceptions:

  1. You experienced a very significant increase in income from 2020 to 2021 (we’re talking tens of thousands).
  2. You are divorced and usually take turns claiming the Child Tax Credit, but the parent who claimed the CTC on their 2020 return also received the advance payments for 2021.

For more information on these kinds of scenarios, check out our article on how the advance CTC payments might affect your tax return, and by extension, your tax refund.

Do I need to report my advance Child Tax Credit payments on my 2021 return?

If you received monthly CTC payments in 2021, the IRS will be mailing you Letter 6419. Reference this letter when filling out your income tax return this year — it will help you compare the monthly credit amounts you received to the amount you can correctly claim on your 2021 tax return. Hold on to this letter to ensure you receive the full amount of the Child Tax Credit you qualify to claim!

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