The good news is that the Refundable Child Tax Credit for Children (RCTC) for 2021 has been enhanced. Complexity is the “price” that taxpayers pay. For the sake of simplicity, we’ll refer to these as “The 4 A’s”: The qualifying children’s age and other characteristics; Advance payments; Additional individuals who qualify; and the phase-out of AGI.
Age and other attributes :-
To begin, the kid must have a Social Security Number (SSN) by the deadline for the 2021 tax return. The credit is $3,600 for each kid under the age of 5 who qualifies. Children between the ages of 6 and 17 pay just $3,000 for the RCTC. As an example, a family of four with a 3-year-old and two children aged 7 and 10 will report a total credit of $9,600.
Advance payments :-
During the months of July to December of 2021, taxpayers received advance payments. The IRS delivered an advance payment notice, Letter 6419, earlier this year. Advance payments of $4,800 were reported by the IRS to the family depicted above. That’s an RCTC of $4,000 (minus the $4,000 they paid in advance) that they’d report on line 28 of their tax return.
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Additional individuals who qualify :-
The RCTC also applies to a taxpayer’s stepchildren, grandchildren, and great-grandchildren, which is not unusual (ren). The list is extended to include persons like the taxpayer’s siblings, step-siblings, half-siblings, or a descendant of any of these (who fulfil the age and SSN conditions) . These people are generally eligible if they fulfil the IRS’s criteria for being considered a dependent.
Adjusted gross income phase out :-
The two-step computation of the phase-out of Adjusted Gross Income (AGI) is referred to in the line 5 Worksheet in the Schedule 8812 instructions and line 9. Single taxpayers with an AGI of less than $75,000 should not fear the IRS’s “eraser” breaking out. In addition to the phase-out period for Head of Household and Married Filing Jointly, there is some relief.