Without further extensions the Child Tax Credit (CTC) will return to normal levels and can only be claimed when filing your tax return, versus advance payments provided during the pandemic years.
The child tax credit (CTC) will reset to at$2,000 per child in 2022 and 2023. Families must have at least $3,000 in earned income to claim any portion of the credit andcan receive a refund worth 15 percent of earnings above $3,000, up to $1,500 per child (Additional CTC). See below for the latest income thresholds for getting the full CTC payment
Covered in this Article:
$4,200 CTC as a Sustainable Monthly Payment?
With Republicans taking over the House in 2023, there is talk about Democrats getting a deal done prior to the New Year for expanding the tax credit (in line with Biden’s pandemic expansion) and making it permanent.
The pandemic expanded CTC was credited with helping 65 million children, and keeping nearly 4 million out of poverty. So while there is a strong push to keep this credit in place, it was stripped out of the 2022 IRA bill due to the funding costs and risk of endangering the overall IRA bills passage.
However a bipartisan group of Senators has proposed a possible permanent $4,200 expansion on the CTC under the Family Security Act (FSA) 2.0. Mitt Romney is the main architect of this bill, and is in line with a proposal he suggested a few years ago.
The FSA 2.0 would increase the maximum annual CTC from $2,000 to $4,200 for each child under age 6 and $3,000 for each child ages 6 through 17, paid out in advance monthly installments. Benefits would be limited to a maximum of six children annually with a $10,000 minimum household earnings threshold to get the full benefit.
Expecting parents could also qualify for an additional $2,800 credit during the final four months of pregnancy.
There are however some cost offsetting provisions in the FSA 2.0, such as cutting the EITC credit and Head of Household filing status which may create some contention in getting this bill passed in its current format.
I’ll post further updates as discussions proceed and you can subscribe (free) to get the latest updates.
What is the CTC credit (vs ACTC and ODC)?
The CTC payment works as a deduction and a refundable credit. The deduction component means it isnot fully refundable and only reduces your tax liability. So if the amount of your Child Tax Credit is greater than the amount of income tax you owe then you may not get the entire CTC.
But you may still be able to claim the Additional Child Tax Credit (ACTC) which is the refundable component of the child tax credit (but treated as a separate payment). This is the case when your potential Child Tax Credit amount is greater than your tax liability.
The ACTC allows you to get a check for the remaining or non-deductible Child Tax Credit (up to $1,500 per child) after your tax bill is reduced to zero (see table below for annual adjustments and income limits).
For examplea couple, with one qualified child, who filed jointly with household income of$85,000 will receive the full CTC since theirincome is above $3,000but less than the maximum income thresholds for married couples shown in the table below.
Another example isa single mother with two children earning $14,500. She will receive a refund of $1,500 for two children (15 percent of $11,500, up to the $1,500 maximum).
For those who don’t qualify for the CTC or ACTC, there is a Credit for Other Dependents (ODC), which provides a non-refundable tax credit of up to $500 per qualifying person.
To determine which credit and how much you qualify for, it is best to use tax software packages like Turbo Tax or e-file, which can help determine your eligibility an refund amount (Schedule 8812).
Maximum Child Tax Credit and Income Thresholds
The updated maximum credit amount, refundable portion and income thresholds for CTC qualification are shown below.
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| Tax Year | Max Tax Credit Amount | Refundable CTC Max | Income Threshold Lower Limit (reduced/phased-out by $20 for each $1,000 of income above the income threshold) | Maximum Income Threshold Above which no credit is claimable |
|---|---|---|---|---|
| 2022 and 2023 | $2,000 | $1,500 | $400,000 (joint return), $200,000 (individual and other filing status') | $440,000 (joint return), $240,000 (individual and other filing status') |
| 2021 (revised under ARP) | $3,000 (6 to 18), $3,600 (under 6) | N/A | $150,000 (joint return), $75,000 (individual and other filing status') | $440,000 (joint return), $240,000 (individual and other filing status') |
| 2021 | $2,000 | $1,400 | $400,000 (joint return), $200,000 (individual and other filing status') | $440,000 (joint return), $240,000 (individual and other filing status') |
| 2020 | $2,000 | $400,000 (joint return), $200,000 (individual and other filing status') | $440,000 (joint return), $240,000 (individual and other filing status') |
Some states are and have paid similar child tax credit payments to qualifying residents.
Child Tax Credit Qualification rules
The Child Tax Credit (CTC) coverschildrenunder17 years-old and is available to tax paying parents or legal guardians on the child. Full CTC eligibility is subject to income limits as shown in the table above. The IRS has published additional information around claiming this credit via one or qualifying children.
A Qualifying child for this credit is someone who meets the following criteria of six tests: age, relationship, support, dependent, citizenship, and residence:
- Age Test – To qualify, a child must have been under age of 17 (i.e. 16 years old or younger) at the end of the year in which the credit is being claimed for.
- Relationship Test – To claim a child for purposes of the Child Tax Credit, they must either be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals, which includes your grandchild, niece or nephew. An adopted child is always treated as your own child.
- Support Test – In order to claim a child for this credit, the child must not have provided more than half of their financialsupport in the given financial year the credit is being claimed for.
- Dependent Test – You must claim the child as a dependent on your federal tax return. No one else can claim the child.
- Citizenship Test – To meet the citizenship test, the child must be a U.S. citizen, U.S. national, or U.S. resident alien.
- Residence Test – The child must have lived with you for more than half of the year you are the claiming the credit for.
- Income Limitations – The credit is limited if your modified adjusted gross income is above a certain amount. Limits are shown in the table above based on filing status. The credit is reduced/phased-out by $50 for each $1,000 of income above the income threshold amounts. The phaseout ranges are set by statute and so are not adjusted for inflation.
- In addition, the Child Tax Credit is generally limited by the amount of the income tax you owe as well as any alternative minimum tax (AMT) you owe.
- Additional Child Tax Credit (ACTC) – If the amount of your Child Tax Credit is greater than the amount of income tax you owe, you may be able to claim the Additional Child Tax Credit (ACTC).The ACTC is equal to the lesser of the un-allowed Child Tax Credit, or 15% of your earned income that is more than $3,000.
The Child tax credit can be claimed in addition to the existing credits(like the EITC)for Child Dependent Care expenses.
The threshold for the other child related tax credit, known as thekiddie tax – meaning the amount of unearned net income that a child can take home without paying any federal income tax was is $2,200.
EITC and ACTC Refund Delays due to PATH
The IRS has alreadyannounced that it will have tohold/delay refund payments for people claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) due to additionalanti-fraud safeguards/reviews under newly enacted laws (PATH Act).
While the IRS will continue to accept returns claiming EITC and ACTC the new law requires the IRS to hold refunds on tax returns claiming these popular credits, even if you have claimed it successfully in past years, until mid-February.
Refund payments will subsequently be delayed past the current schedule (assuming all other items are in order).
Also note that the IRS is required to hold the entire refund — even the portion not associated with the EITC and ACTC. Note however that this refund hold only applies to the Additional Child tax credit. Not the standard Child tax credit.
Expanded CTC under Biden ARPA Bill
In response to fighting child poverty and providing support to families during the COVID pandemic, President Biden and Democrat’s, have via the now enacted ARPA COVID relief bill, raised the current $2,000 CTC (details below) to $3,000 annually per child (or $250 monthly) between the ages of 6 and 17, while increasing it to $3,600 for children under the age of 6 (infants), equivalent to $300 monthly. Ages are as of the end of 2021.
The IRS will allow qualifying tax payers to choose to receive these payments on a monthly basis versus eligible recipients only being able claim the credit in a lump-sum via their tax return on an annual basis. The main criteria will be to have an e-filed 2019 or 2020 tax return or update details via the IRS non-filer tool.
The size of the credit would diminish (phase-out) for Americans earning more than $75,000 per year, as well as for couples jointly earning more than $150,000 per year. However unlike other income based credits, this does not require earned income or wages so working and nonworking people would be able to claim this benefit.
Note however that the new CTC amounts are only a temporary increase for one year, similar to the increase to the Earned Income Tax Credit (EITC) in 2021.
When Will I Start Getting These Advance CTC Payments?
The IRS will start making monthly payments from mid-July 2021 (see full schedule and payment FAQs), based on 2020 income (AGI) and family size. The CTC payments made this year would be reconciled via 2021 tax returns (filed in 2022) to ensure no over or under payments.
Note that I expect the roll-out of this credit to be a massive challenge for the IRS given it is a new program and paying millions of households within 3 months will be a big challenge to overcome. Verifying eligibility, confirming payment details and actually processing monthly payment will be a mammoth undertaking for the agency.
Case in point, the one time stimulus checks took several weeks to roll-out the first time it was paid last year, so I don’t expect these payments to be smooth or quick, and many could miss out for the first few weeks when the program is available. I’ll post updates on this site to discuss and hopefully provide solutions for payment issues.
2020 and 2021 CTC (before ARPA stimulus bill increase)
The Child Tax Credit (CTC) was set to $2,000 per child for 2021 (before Biden Stimulus bill, ARPA, update), the same level as it was in 2020, and is available to taxpayers who have children aged under 17 at the end of the tax year. Taxpayers can claim the CTC Child Tax Credit for every child who qualifies with no upper limit. For example, if you have four qualifying children you can take the credit for each of them – a total of $8,000.
There are however income limits on the CTC as shown in the table below.
| Tax Year | Max Tax Credit Amount | Refundable CTC Max | Income Threshold Lower Limit (reduced/phased-out by $20 for each $1,000 of income above the income threshold) | Maximum Income Threshold Above which no credit is claimable |
|---|---|---|---|---|
| 2022 and 2023 | $2,000 | $1,500 | $400,000 (joint return), $200,000 (individual and other filing status') | $440,000 (joint return), $240,000 (individual and other filing status') |
| 2021 (revised under ARP) | $3,000 (6 to 18), $3,600 (under 6) | N/A | $150,000 (joint return), $75,000 (individual and other filing status') | $440,000 (joint return), $240,000 (individual and other filing status') |
| 2021 | $2,000 | $1,400 | $400,000 (joint return), $200,000 (individual and other filing status') | $440,000 (joint return), $240,000 (individual and other filing status') |
| 2020 | $2,000 | $400,000 (joint return), $200,000 (individual and other filing status') | $440,000 (joint return), $240,000 (individual and other filing status') |
The above income phase out thresholds are more than three times prior limits (shown in prior year updates below) so will mean a lot more families can take advantage of this credit.
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[2014 Update]This IRS has confirmed that the 2014 Child tax credit will remain at $1,000 through 2014.
[2013 Update] For 2013, the Child Tax Credit was set to drop to $500. However with the fiscal cliff dealthe child tax credit maximum foreach eligible under-age-17 childwas kept at $1,000for 2013 and also extended through 2017. The deal also containsprovisionsto make the 2013 Child Tax Credit available to more working families that previously could not benefit from it by raising income qualification thresholds, which are not indexed to inflation and instead set by statute.
For2012the child tax credit started phasing out (reducing) for those above a specified modified adjusted gross income (MAGI). For married taxpayers filing a joint return, the phase-out begins at $110,000. For married taxpayers filing a separate return, it begins at $55,000. For all other taxpayers, the phase-out begins at $75,000.The credit is reduced/phased-out by $50 for each $1,000 of income above the income threshold amounts.
In addition, the Child Tax Credit is generally limited by the amount of the income tax you owe as well as any alternative minimum tax (AMT) you owe.Other qualification details for the credit, per the update below, are set to remain the same.
As part of bush-era tax cuts extension legislation (Tax Relief, Unemployment InsuranceRe-authorization, and Job Creation Act of 2010), a number of popular tax breaks were extended. This includes the valuable tax credit for dependent children that many parents have taken advantage of over the last few years.
Thanks to past legislation the child tax credit was doubled to its current level of $1,000, plus making the eligibility and qualification thresholds lower so that more families can take advantage of it. The latest legislation keeps all past rules intact and funds the credit for another two years.
