Is the Child Tax Credit Going Away in 2022? Yes and No

The 2021 tax deadline is fast approaching--save the date, it’s on April 18 this year. But for parents who got an advance on the child tax credit (thanks to the American Rescue Plan), confusion reigns. So, what can you expect on this year’s return and how will those early payments affect your refund? We turned to Lisa Greene-Lewis, CPA and tax expert at TurboTax, for help.

As we mentioned, the Child Tax Credit provided a necessary and critical boost to American families in 2021 via the American Rescue Plan, the COVID-19 relief package that was passed by Congress in March of last year.

Prior to 2021, the child tax credit provided families with kids ages 0 to 16 with up to $2,000 per qualifying dependent. In 2021, this tax credit was increased to provide a maximum of $3,600 per qualifying dependent under 6 and a maximum of $3,000 per qualifying dependent for ages 6 to 17. (This is also the first year that 17-year-olds were included in the child tax credit.)

Eligibility for the child tax credit also changed, making the following folks eligible:  single filers with income up to $75,000, heads up household with income up to $112,500 and people married and filing jointly with income up to $150,000. (The credit begins to phase out for anyone making more than those thresholds.) This is significant because, previously, low-earners—in particular those along the poverty line—were only eligible to receive part of the tax break and only to offset what they owed. Now, low-income taxpayers are eligible for what the IRS calls “full refundability,” which means they can receive the full amount, whether they owe that amount in taxes or not. Without this change, a third of children—including half of all Black and Hispanic children and 70 percent of those raised by single moms—did not receive the full credit, according to the New York Times.

One of the most impactful child tax credit amendments was the fact that, for 2021, parents could opt to receive the credit in advance, via monthly payments from July through December. (This meant that working families could receive up to $300 a month per child under age 6 and up to $250 a month per child up to age 17—a move that is credited with lifting three million kids from poverty in July 2021 alone.)

Greene-Lewis maintains that the advance payments are the biggest point of confusion for taxpayers this year. The most critical thing to keep in mind is that those advance payments were just that: A pre-payment on your child tax credit for 2021. In other words, let’s say that you have a four-year-old dependent and were eligible to receive the maximum payment of $3,600. If you received advance payments of $300 per month starting in July, you will receive a lump sum of $1,800 (the remainder of your child tax credit) when your 2021 return is filed and accepted.

Worry you’ll get less than in previous years? Don’t forget that the amount of the child tax credit is still significantly higher this year, which should help offset the blow.

And there’s one more change to note for your 2021 return. If you did receive advance payments on the child tax credit, you’ll need to check your mailbox for Letter 6419 (they were distributed by the IRS in January). This form reports the amount of the advance payments you received, and will help the IRS calculate the remainder of the refund owed to you based on your 2021 income. This could ultimately put more money in your pocket, but if you earned more in 2021 than you did in 2020, it may lower the amount of the child tax credit still owed to you.  

As of right now, the Child Tax Credit will return to the typical amount ($2,000 per dependent up to age 16) for the 2022 tax year and there will be no advance payments offered to families. Of course, this is a massive blow to working parents who have come to rely on it—in many cases, it’s the single difference that’s allowed families to make ends meet. (In turn, that’s led to a reduction in poverty, reduced hunger and preserved the mental and financial health of parents during a remarkably challenging time.) The decision to preserve it for 2022—and beyond—is of course still up for debate, but it’s not looking good.

Bottom line: The child tax credit is here to stay, but it will likely look different on your 2021 vs. your 2022 return.