For 2021 only, the child tax credit (CTC) increased from $2,000 to $3,000 for each child under age 18, or $3,600 for each child under age 6. Unfortunately, the extra amount ($1,000 or $1,600, respectively) is reduced when income exceeds $150,000 for married taxpayers filing a joint return (MFJ) and qualifying widow(er)s (QW), $112,500 for heads of household (HOH) and $75,000 for single taxpayers. Good news though: the normal $2,000 credit amount phases out as usual at $400,000 for MFJ and $200,000 for all others. Thus, higher income taxpayers may lose some of the credit but not all of it. It’s also fully refundable if you have no tax liability.
You also probably noticed that advance CTC payments were made monthly from July through December 2021. These payments were estimates of your 2021 CTC, generally based on your 2020 tax return. If you received advance payments in excess of the CTC allowed on your 2021 return due to a change in circumstances, you may have to repay some or all of the excess amount. For example, you may have a 2021 repayment in a shared custody arrangement if you claim your child only in even-numbered years. There is some repayment protection depending on your income level. However, if your income equals or exceeds $120,000 for MFJ or QW, $100,000 for HOH or $80,000 for single or MFS, plan on repaying the entire excess amount as additional income tax on your 2021 return.
In January 2022, the IRS will send Letter 6419, which provides the total amount of advance CTC payments that were disbursed to you during 2021. Keep this letter to give to us when we prepare your 2021 tax return.