Clearing Up Child Tax Credit Confusion
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What change to the child tax credit created confusion for 2021 tax filers?
Here's your money briefing for Wednesday, March 30th. I'm J.R. Whelan for The Wall Street Journal. All this week, we're taking a look at some of the most pressing tax issues facing many Americans as they get ready to prepare their returns. Today, a topic that has sparked quite a bit of confusion this year, the child tax credit.
What you basically have to do is figure out this year the amount of the entire credit you're eligible for and then subtract from that what you got already in those monthly payments last year.
There are a lot of facts and figures to keep track of, but our tax reporter Richard Rubin has been sorting through it all, and he'll be here to put it in plain English after the break.
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Last year, Congress expanded the child tax credit as households were recovering from the pandemic. That's the good news, since it puts some much-needed cash in the pockets of many parents.
How does the child tax credit differ from a tax deduction and who qualifies?
The bad news is now it's causing a lot of confusion as people sit down and prepare their taxes. WSJ tax reporter Richard Rubin has been following all the changes, and he's here to help us better understand the fine print. Rich, thanks so much for being with us. Oh, thanks for having me. So, Rich, let's start big picture for a moment. What exactly is the child tax credit, and who's eligible to receive it?
So the child tax credit is a break that most households with children get for just having those children. It's a set amount of a reduction of your total tax bill. So it's not a deduction, which reduces the amount of income subject to tax. It's a credit, which means that reduces the total amount of tax you owe by whatever amount you qualify for. Now, the most common situation, of course, is parents living with their own children, but this can also apply in other situations for people who have custody of children, for relatives who aren't their children, and other situations as well. And there are income limits for the child tax credit. So they vary by year, and we can talk about some of the changes that Congress has put into place, but at the very high end,
Once individual income hits $200,000 or married couples income hits $400,000, the entire credit starts shrinking. So very, very wealthy people can't get the child tax credit, but for the bulk of households, it's available.
Yeah, there have been some changes that Congress has made. They expanded these tax credits in 2017. But what changed last year?
Yeah, so Congress made some changes for 2021 only. So those aren't in effect for tax year 2022. But for 21, the returns that people are filing right now as we head up to this mid-April deadline. And they did a few things. Number one, they increased the size of the credit. So instead of $2,000 per child, it's up to $3,000 per child or $3,600 per child for those under age six at the end of last year. Now, those higher amounts start phasing out once income hits 75,000 for individuals and 150,000 for married couples. You can still get the base 2,000 credit if you're in between that and the 200, 400,000 level.
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