How will the Advance Child Tax Credit impact your 2021 taxes?

If you didn’t unenroll from receiving the Advance Child Tax Credit and have been collecting these payments every month since July 2021, your 2021 taxes will be affected. Since you have been receiving these payments, you will only qualify to get the other half of the credit (what’s left over) when you file your taxes. Although the credit increased from $2,000 to $3,600 (for children under 6) and $3,000 (for children 6 to 17), your expected tax refund will be lower unless you qualify for other deductions and credits that you didn’t qualify before. These payments won’t have an impact on the Child and Dependent Care Credit, Earned Income Tax Credit, Education Credits, and other credits and deductions that can increase your tax refund, if you qualify for them.

The good news is that the American Rescue Plan (ARP) Act of 2021 made the credit FULLY REFUNDABLE, which means you can get money back even if you don’t have a tax liability. Also for 2021, it allows the taxpayer to claim the credit for children 17 or younger (changed from 16 or younger).

However, if you collected these payments and were not entitled to them (due to changes in income or dependents), you may owe the IRS the excess payments made to you, unless you qualify for a Repayment Protection (covered in prior posts).

Contact us if you have any questions or concerns regarding this or any other topics.