Child Tax Credit

[Shannoninfinger]

We alternate years claiming my step son. Last year we claimed him so we are receiving the $250 credit for him. We have two other children together so we are receiving $800 total. My question is, since we are not claiming him on our 2021 taxes will we be penalized for receiving this credit?

[conniem123]

Hi, great question!  Your step son would need to be on your 2021 tax return as your dependent to qualify for the Child Tax Credit.  Since you know he will not be your dependent on your 2021 tax return you may choose to unenroll from receiving the advance Child Tax Credit payments.  The IRS has a tool to unenroll.  You will need to unroll by August 2.

https://www.irs.gov/credits-deductions/child-tax-credit-update-portal

You will reconcile your 2021 Child Tax Credit to your advance Child Tax Credits on your 2021 tax return.  You may be eligible for repayment protection. 

 Your repayment protection amount will decrease based on how much your modified adjusted gross income (AGI) is greater than the following amounts based on the filing status on your 2021 tax return:

• $60,000 if you are married and filing a joint return or if filing as a qualifying widow or widower;
• $50,000 if you are filing as head of household; and
• $40,000 if you are a single filer or are married and filing a separate return.

This repayment protection amount is then phased out – or reduced – as your modified AGI exceeds the amount above. Your repayment protection amount will equal $0 and your repayment amount will not be reduced when your modified AGI is at or above this higher amount based on the filing status on your 2021 tax return:

• $120,000 if married and filing a joint return or if filing as a qualifying widow or widower;
• $100,000 if filing as head of household; or
• $80,000 if you are a single filer or are married and filing a separate return.

Example: You filed a joint return with your spouse for tax year 2020 and properly claimed the Child Tax Credit for three qualifying children. The IRS estimated your total advance Child Tax Credit payment amount based on these qualifying children. However, when you file your 2021 joint tax return with a modified AGI of $75,000, you claim the Child Tax Credit for only one qualifying child – and therefore have two excess qualifying children. Your modified AGI of $75,000 exceeds your applicable $60,000 modified AGI threshold by 25 percent. Your potential full repayment protection amount of $4,000 (that is, $2,000 for each excess qualifying child) is reduced by 25 percent to $3,000.

[Shannoninfinger]

I tried to unenroll for just him but you can only unenroll for all kids. I am still wanting the credit for my other 2 kids. Would I be able to just set aside that money to pay back what we owe since we won’t be claiming him?

[conniem123]

I understand you are wanting to continue to receive the advance Child Tax Credit for your two dependents that will be on your 2021 tax return.  Great idea to set aside the excess advance and be prepared.

When you file your 2021 tax return during the 2022 tax filing season, you will need to compare:

1. The total amount of the advance Child Tax Credit payments that you received during 2021; with
2. The amount of the Child Tax Credit that you can properly claim on your 2021 tax return.

Excess Advance Child Tax Credit Payment Amount: If you receive a total amount of advance Child Tax Credit payments that exceeds the amount of Child Tax Credit that you can properly claim on your 2021 tax year, you may need to repay to the IRS some or all of that excess payment.

In January 2022, the IRS will send you Letter 6419 to provide the total amount of advance Child Tax Credit payments that were disbursed to you during 2021. Please keep this letter regarding your advance Child Tax Credit payments with your tax records. You may need to refer to this letter when you file your 2021 tax return during the 2022 tax filing season.

[Shannoninfinger]

Do you know if it will be more than what we’re credited with? What we will have to repay? We have never had to pay in taxes and always received a good amount back. I just don’t want to be blind sided and end up actually owing the IRS. 

[conniem123]

Yes, not fun to have to repay the advance payments.  Since your one dependent would not be eligible for the Child Tax Credit on your 2021 tax return, you may need to repay the amount of the advance payments you receive.  Note the "may need to repay".  There is a repayment protection based on your 2021 adjusted gross income.

 Your repayment protection amount will decrease based on how much your modified adjusted gross income (AGI) is greater than the following amounts based on the filing status on your 2021 tax return:

• $60,000 if you are married and filing a joint return or if filing as a qualifying widow or widower;
• $50,000 if you are filing as head of household; and
• $40,000 if you are a single filer or are married and filing a separate return.

This repayment protection amount is then phased out – or reduced – as your modified AGI exceeds the amount above. Your repayment protection amount will equal $0 and your repayment amount will not be reduced when your modified AGI is at or above this higher amount based on the filing status on your 2021 tax return:

• $120,000 if married and filing a joint return or if filing as a qualifying widow or widower;
• $100,000 if filing as head of household; or
• $80,000 if you are a single filer or are married and filing a separate return.

[Shannoninfinger]

Our income together is way under $120k a year, so we should be good?

[conniem123]

Your repayment protection amount will decrease based on how much your modified adjusted gross income (AGI) is greater than $60,000 if you are married and filing a joint return, and then are gradually phased out until completely phased out at $120,000.  Your repayment protection will depend on your adjusted gross income and where is falls between $60,000 and $120,000.

Example:  You filed a joint return with your spouse for tax year 2020 and properly claimed the Child Tax Credit for three qualifying children. The IRS estimated your total advance Child Tax Credit payment amount based on these qualifying children. However, when you file your 2021 joint tax return with a modified AGI of $75,000, you claim the Child Tax Credit for only one qualifying child – and therefore have two excess qualifying children. Your modified AGI of $75,000 exceeds your applicable $60,000 modified AGI threshold by 25 percent. Your potential full repayment protection amount of $4,000 (that is, $2,000 for each excess qualifying child) is reduced by 25 percent to $3,000.