2021 Child Tax Credit: how will it affect my 2022 tax return?

On Wednesday 15 December the IRS will begin distributing the sixth round of direct payments from the expanded Child Tax Credit, the final batch provided for by the American Rescue Plan (ARP).

Congress passed the ARP back in March and the $1.9 trillion relief package expanded the decades-old Child Tax Credit programme to include direct monthly payments for the first time. However only one year of funding was ensured by the ARP and, unless Congress is able to pass an extension in the near future, the monthly payments will end with the December instalment.

But what does all this mean for tax filing in 2022? Can you still rely on a Child Tax Credit to reduce the size of your family’s tax bill, or even use it to boost a tax refund?

What does the Child Tax Credit mean for my tax filing?

For months Congress has been debating the future of President Biden’s Build Back Better bill, a legislative package which includes a one-year extension for the improved Child Tax Credit. But regardless of whether that extension materialises, Child Tax Credit recipients will have a credit to claim when they file their taxes in 2022.

Since July the IRS has been sending families monthly checks worth $300 for children five or younger, and $250 for those aged between six and 17. The July-December monthly payments have constituted the first six months of provision, but the ARP provided a full year of the boosted programme.

The remaining six months of the expanded Child Tax Credit will come as a single end-of-year tax credit, to be claimed when filing taxes in 2022. This means that parents still have a tax credit worth up to $1,800 per child to reduce their 2021 tax bill or increase the size of their tax refund.

How do I claim the Child Tax Credit when filing in 2022?

In early 2022 you will be required to file your tax returns for the previous year and you will get the chance to claim the remainder of the expanded Child Tax Credit. The IRS has confirmed that it will send out Letter 6419 to Child Tax Credit recipients in January, outlining what remaining credit they have.

The letter will advise you on how to ensure that you get your full Child Tax Credit entitlement when you file, as well as the size of the payment that you can expect. You should keep the letter and may need to refer to it when filing taxes.

You should also bear in mind that the advanced Child Tax Credit payments you received in 2021 are not considered income, meaning that the payments will not be taxed for anyone who is eligible.

The only exception is if your 2021 income exceeded the original estimates and you rise above the income threshold for eligibility. In this instance, you may have to pay back some of the money received from the Child Tax Credit.