For tax year 2021 the following changes have been made to the Child Tax Credit:
- The Child Tax Credit has been expanded to apply to qualifying children who have not yet reached age 18 by the end of 2021.
- The initial amount of the Child Tax Credit is increased to $3,600 for each qualifying child who has not yet reached age 6 by the end of 2021 and $3,000 for each qualifying child who has not yet reached age 18 by the end of 2021.
- If you meet certain residency requirements, the Child Tax Credit will be fully refundable even if you received no income.
- See the IRS instructions for Form 8812 for phase-out and calculation information.
Advanced payments of the Child Tax Credit:
- From July 2021 to December 2021, taxpayers may have received an advance payment of the Child Tax Credit equal to 50% of the IRS estimate of the Child Tax Credit.
- The IRS used the tax year 2020 return to estimate the amount of the advances. If a 2020 return wasn't filed the 2019 return was used.
- If you received advance Child Tax Credit payments during 2021 and the credits you figure using Schedule 8812 are less than what you received, you may owe an additional tax. See Reconciling Your Advance Child Tax Credit Payments on Your 2021 Tax Return for details.
The IRS has indicated recipients of the Advanced Child Tax Credit (ACTC) will need to compare the amount of payments received during 2021 with the amount of CTC claimed on their 2021 return. If the amounts don't match what the IRS has on record, this could result in a delay of refund. For more information, including a link to the IRS CTC portal, see IRS Updates and FAQs for 2021 CTC and ACTC Payments.
ProSeries will automatically compute the Child Tax Credit (CTC) and additional child tax credit based on your entries throughout the return. However, for tax year 2020, taxpayers may elect to use 2019 earned income amounts to figure the credit. See the Form 1040, line 19 instruction tip and IRS Pub. 972 for more information and who qualifies for the credit.
Entering advance child tax credit payments from Letter 6419
ProSeries will generate a final review error on the 8812 for all Individual tax returns, even if there are no current dependents. If the taxpayer/spouse received advance child tax credit payments for dependents not currently on the tax return and those payments are not entered this can cause a delay in receiving the tax refund for 2021.
- The taxpayer should receive letter 6419 showing how much advance child tax credit payments they received.
- Open the Schedule 8812.
- Press F6 to bring up Open Forms.
- Type in 8812 and press Enter.
- Scroll down to the Principal Place of Abode and Letter 6419 Information Smart Worksheet.
- Enter the information for the tax return.
- If the taxpayer/spouse did not receive any advance child tax credit payments complete question A1 and A2 and enter 0 for B1 and B2 to clear the Final Review errors.
Elect to use prior year earned income for tax year 2020.
For tax year 2020 returns, your client may elect to use their 2019 earned income to figure this credit if their earnings were greater in 2019 than in 2020. To make this election:
- Complete the return (wages, dependents etc) as you normally would.
- Open the 8812.
- Scroll down to the Prior Year Earned Income Election Smart Worksheet below line 5.
- Check the Yes box on line A.
Make sure to check the return with and without this election to compare which option is more advantageous to your client. Since the additional Child Tax Credit calculation is so complex, electing to use prior year earned income may have no effect on the credit amount, or could even lower the allowed credit.
Why isn't the Child Tax Credit calculating?
If the Child Tax Credit isn't calculating, you may be missing required information on the return. Use the steps below to resolve this issue.
Due to the Child Tax Credit being a nonrefundable credit in tax year 2020 and prior, the return must have taxable income for the credit to be calculated.
Follow these steps to resolve this issue:
- Open the Federal Information Worksheet.
- Scroll down to Part 1 - Personal Information.
- Make sure a Social Security number and Date of birth is entered for the taxpayer/spouse.
- Scroll down to Part III - Dependent/Earned Income Credit/Child and Dependent Care Credit Information.
- Make sure a Social Security number and Date of birth is entered for the dependent(s).
- ITIN and ATIN are no longer allowed for the Child Tax Credit.
- Make sure the checkboxes labeled Not qual for child tax credit OR non U.S. or Not qual credit other dep aren't marked.
- Review the Child Tax Credit and Credit for Other Dependents Worksheet to see whether they qualify for the credit.