Did you know that you might be able to use Form 8812 to get the additional child tax credit – even if you don’t owe federal income taxes? If the total credit amount for all of your qualifying children exceeds the tax amount you owe for the year, the IRS will ask you to create Schedule 8812 to claim that amount. Let’s see how to prepare and file this form.
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Changes to the additional child tax credit
For tax years prior to 2018, federal tax law allowed you to claim a child tax credit of up to $ 1,000 for each qualifying child that you claimed as dependent on your tax return. As of 2018, the child tax credit has doubled to $ 2,000 per eligible child, and the additional child tax credit can be claimed up to $ 1,400.
Impulse effect on the child tax credit for 2021
Changes to Child Tax Credit
The American Rescue Plan increased the maximum child tax credit in 2021 to $ 3,600 for eligible children under 6 and to $ 3,000 per child for eligible children ages 6-17. Prior to 2021, the value of the credit was up to $ 2,000 per Eligible Child 17 year olds were not eligible for the credit.
The 2021 child tax credit changes include lower income limits than the original child tax credit. Families who do not qualify for credit at these income limits will continue to be eligible for $ 2,000 per child credit using the original child tax credit and phased-out amounts.
In addition, all 2021 credit will be fully refunded. This means eligible families can get them even if they don’t owe federal income tax and they don’t need to fill out IRS Form 8812 for 2021.
New temporary child tax credit prepayments
The child tax credit was expanded by the American Rescue Plan Act, enacted in March 2021. Part of that expansion is bringing the 2021 tax credit forward to families by sending them direct payments in 2021 instead of letting them wait to prepare their 2021 taxes in 2022. Most families don’t have to do anything to to receive their prepayment. Typically, the IRS will calculate the payment amount based on your 2020 tax return. Eligible families receive prepayments, either by wire transfer or check.
The amount you will receive will be matched against the amount you are entitled to when you prepare for your 2021. Most families get about half of their tax credit from the prepayments. If you get too little, you will have to pay an additional amount on your tax return. In the unlikely event that you get too much, you may have to pay back the excess depending on your income level.
For updates and more information, see our blog post on Child Tax Credit 2021.
As you are getting your 2020 taxes done, here’s what you should know about Form 8812
Qualifying children requirements
Before you can claim the additional child tax credit on Form 8812, you must verify that your loved ones meet all of the qualifying child requirements on the original child tax credit. The child can be yours:
- son
- daughter
- Blood or step siblings
- Stepchild
- Foster child or the offspring of any of the above (e.g. a niece or grandchild)
During the tax year, the child may not be at least 17. After all, each child for whom you are entitled to credit must have lived with you for more than half of the tax year. However, even if the child meets all of these requirements, you will not be able to claim the credit unless you request an exemption for each of them on your tax return; Your mere eligibility for the child is not sufficient.
Exceptions to the qualifying child requirement
The IRS has some exceptions to the requirement that the child live with you for more than half of the tax year. This includes all children who were born in the same tax year but then died, provided that their place of residence was where the child lived.
The IRS also treats your child as if they are living with you when they are in school or in a juvenile detention center, or when you are away on business, receiving medical treatment, or serving in the military. A parent who does not have custody can claim the credit even if the parent who has custody agrees not to use the credit or an exemption for the child.
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Income restrictions
If you meet all other requirements but the amount of tax you owe at the end of the year is either zero or less than the credit, you will not be eligible for the full $ 2,000 child tax credit. However, you may be eligible for the reduced additional child tax credit by completing Schedule 8812 and including it on your Form 1040.
For most taxpayers, the credit can be reduced if you have an Adjusted Gross Income that is above the threshold applicable to your enrollment status. For example, if you are filing as a single, householder, separately married, or qualifying widower (ren) taxpayer for the 2020 tax year, and have an adjusted gross income of more than $ 200,000 ($ 400,000 for joint applicants), the credit will decrease if the the the The amount exceeding the limit increases.
You must have an income from work
When you create Schedule 8812 and calculate the child tax credit you are entitled to, you need to calculate the amount of your gross income that you earn. This amount is entered in line 6a. Your earned income includes income that you receive from work or from active employment in a company. It excludes most of the taxable income generated from investments, such as taxable income. For example, the interest on a savings account or the profit you make from trading stocks during the year. Unemployment benefits are also not counted as earned income.
In addition, the Consolidated Appropriations Act (CAA) came into force on December 27, 2020 as an economic measure to relieve those affected by the pandemic. For the 2020 tax year, the CAA allows taxpayers to use their 2019 earned income if it was higher than their 2020 earned income when calculating the additional child tax credit and the earned income tax credit (EITC).
Submit Form 8812
First, complete the Child Tax Credit and Other Dependent Credit Worksheet that applies to you. Please refer to line 19 of your Form 1040 for instructions. If you are eligible for the Child Additional Tax Credit, complete Form 8812 and attach it to your Form 1040.
You use Form 8812 to calculate your additional child tax credit. This form consists of three parts:
- Part I should be completed by all submitters. Part I is where you enter your child tax credits and earned income.
- Part II is only completed by applicants who have three or more qualifying children. A worksheet is attached to Schedule 8812 to calculate the amount entered in Part II, Line 9.
- Part III tells you the amount that you can claim for your additional child tax credit. You enter this amount on line 28 of your Form 1040.
Note that if you apply for the Child Additional Tax Credit using Form 8812, your tax refund may be delayed.
Improper claims
If you mistakenly claim the Child Tax Credit, Other Relatives’ Credit, or Supplementary Child Tax Credit, you will be ineligible for these credits for two years if it is determined that your mistake was caused by negligent or willful disregard of the CTC, ODC – or ACTC rules. If the IRS determines that the error was due to fraud, you will not be able to claim any of these credits for 10 years. You will also likely have to pay penalties for incorrect claims.
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