In the past, Form 8812 automatically calculated what your credits for qualifying children and other dependents should be and applied to your refund or tax due. For 2021, this has changed when the American Rescue Plan was enacted. The IRS made monthly Advanced Child Tax Credit (CTC) payments of up to half of your 2021 Child Tax Credit from July through December to help support families raising children. The amount paid out was based on your 2020 tax return and the credit is based on $3,600 per child under age 5 and $3,000 per child age 6 through 17.
You will need to ‘reconcile’ Form 8812 using Letter 6419 to report the correct child tax credit on your tax return.
In January 2022, IRS sent out Letter 6419 stating the aggregate amount that you received in 2021 and to report. Each taxpayer will receive one. For example, if you are married filed jointly and received a total of $2000 in advanced CTC, then each taxpayer will get a Letter 6419 listing $1,000 to report. Collectively you will report $2,000 on the tax return.
Here is one possible scenario that can have a negative impact without any changes to income and filing status:
- Tabatha files as head of household and has two children, ages 10 and 14. Tabatha’s AGI is $195,000 making her eligible for a Child Tax Credit of $2,000 per child ($4,000 in total).
- Tabatha has her paycheck withholding set up just right so that she typically receives a refund each year of about $500, taking into account her expected Child Tax Credit of $4,000.
- If Tabatha did not elect out of receiving the advance Child Tax Credit payments, then she should have received 50% of her total credit in monthly payments from July through December ($4,000 total x 50% = $2,000).
- When Tabatha files her 2021 income tax return, she will find that instead of receiving a $500 refund with her 2021 return, she will owe $1,500. This is because she already received $2,000 of her Child Tax Credit as an advance, leaving only $2,000 available as a credit when she files her 2021 return.
If you had changes to your income and filing status during 2021, this may have an effect on how much you keep and how much you have to pay back.
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