What is the Advance Child Tax Credit? 

advance child tax credit

The COVID-19 pandemic hit many families hard financially, with countless businesses closing and people losing their jobs during lockdowns. 

On top of that, according to USDA data, raising a middle-class child from birth to 17 years old (after adjusting for inflation) costs around $286,000. That’s up from $233,610 back in 2015. 

Given these challenging times, backed by new financial measures approved by Congress, the IRS released the Advance Child Tax Credit program to ease the financial burden on families during the pandemic.  

What is the 2021 Advance Child Tax Credit?

Some context first: Typically, during each tax year, parents benefit from a standard Child Tax Credit of up to $2,000 per child (an eligible child being under the age of 17). For those who fully apply the Child Tax Credit to offset their tax bill, combined with the Additional Child Tax Credit, the total credit available is up to $3,600, depending on the age of your child.

To help parents during the difficult times of the pandemic, the IRS carried out the advance Child Tax Credit initiative by sending taxpayers a portion of their 2021 Child Tax Credit payments in the summer of 2021, well in advance of the filing of their 2021 tax return. The tax relief was part of Congress’ American Rescue Plan Act, which was signed into law in March 2021. 

The IRS sent the monthly payments to taxpayer parents from July 15, 2021, to December 2021. These early payments represented around 50% of the estimated Child Tax Credit amount that taxpayers could claim on their 2021 tax return for the 2022 tax filing season. 

As part of the advance Child Tax Credit, Congress temporarily raised the maximum child tax credits. Here’s a look at the updates:  

  • Under the age of 6: increased from up to $2,000 to up to $3,600 per qualifying child
  • Between 6 and 16: increased from up to $2,000 to up to $3,000 per qualifying child
  • 17-year-olds: now eligible for up to $3,000 in credit per qualifying child

How long do these increases last, you ask? The official government website for the Child Tax Credit outlines the following: 

“Families can still receive the entire 2021 Child Tax Credit that they are eligible for if they file in 2022. However, continuing enhanced benefits and monthly payments would require new legislation to be passed.”

Who qualified for the advance Child Tax Credit? 

Not every American household benefited from the advance Child Tax Credit. 

Here are the requirements that parents needed to have met according to the IRS:

  • – Parents must have filed a 2019 or 2020 tax return and claimed the Child Tax Credit on their return(s) in the past, and
  • – Must have lived in the United States (the 50 states and the District of Columbia) with their children for more than half the year or have filed a joint tax return with a spouse who has had a main home in the US for more than half the year, and
  • – Must have a qualifying child that’s under the age of 18 by the end of 2021 with a valid Social Security Number, and
  • – Made less than certain Modified Adjusted Gross Income (MAGI) limits

However, high-income taxpayers had a limit on how much advance Child Tax Credit they could claim. You could claim the full tax credits if your Modified Adjusted Gross Income (MAGI) fell under the following thresholds:

  • – $150,000 for Married Filing Jointly or Qualified Widow(er)s
  • – $112,500 for head of household filers, and
  • – $75,000 for single and Married Filing Separately

If your MAGI exceeded these income limits, the IRS would reduce your credit by $50 for each $1,000 above the threshold limit. 

Plot twist: Why is the IRS asking some to pay back the advance Child Tax Credit? 

The IRS sent the advance Child Tax Credit over a period of 6 months, from July to December 2021, as monthly payments. The agency sent these payments as checks or direct deposit along with Letter 6419 to notify taxpayers of the upcoming credits. 

However, at Bright!Tax, we’ve noticed some recurring issues among our expat clients with their advance CTC checks. 

🚩 The first problem… 

Many US expats don’t get correspondence overseas, so a paper check becomes an issue for people who don’t have a reliable mailing system. As a result, many expats never received these checks in the first place, despite the IRS having mailed them.

🚩 The second problem… 

Because expats spend the majority of their time overseas, many didn’t actually qualify for the expanded Child Tax Credit amount. 

*A reminder – an expat (or their spouse, if filing jointly) must have lived with their children in the US for more than 6 months out of the year. 

Unfortunately, those who received these advanced payments (but did not qualify) have found themselves having to unexpectedly pay back the money to the IRS when filing their tax return. Though intended to provide extra financial support, the Advanced Child Tax Credit is ultimately creating a lot of confusion for expats. Especially so when some are being asked to pay back a benefit they never received in the first place!

When It Comes to US Expat Taxes, Bright!Tax Has Your Back

US tax can feel challenging to navigate, especially if you’re overseas. It’s even more challenging when trying to keep up with IRS changes while juggling your existing tax responsibilities (and exploration) abroad! 

If you didn’t qualify for the advance CTC, but the IRS asks you to refund the checks, Bright!Tax can help. We can connect with the IRS on your behalf to get clarification about your situation and determine your most tax-efficient path forward.

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