2021 Child Tax Credit Includes July 15 Advances

Recently there have been some significant changes to the 2022 Child Tax Credit under the American Rescue Plan. Under this change the credit has been increased for many. While this can be good news for some, there are potential complications for people whose income changed or who are divorced or divorcing. Read on to learn more about what the key changes are, who is eligible, how advances work, and what to watch out for.

Key Changes to the Child Tax Credit for 2022

The 5 key changes to the Child Tax Credit (for 2022 only):

1. For children over 6, the credit is increased from $2,000 to $3,000 per child
2. For children under 6, the credit is increased from $2,000 to $3,600 per child
3. The age limit for eligible children went from 16 to 17
4. IRS will now pay half the total credit in advance monthly payments beginning July 15. You claim the other half when you file your 20212 income tax return.

Who is Eligible for the 2022 Child Tax Credit?

The credit begins to phase out if your modified adjusted gross income (AGI) is above $400,000 on a joint return. The phase-out begins over $200,000 on a single or head-of-household return.

Once you reach the $400,000 or $200,000 threshold, the credit amount is reduced by roughly $50 for each $1,000 of AGI over the applicable threshold amount.

2022 Child Tax Credit Advances

One of the most important things about the 2022 Child Tax Credit advances is that they are a partial prepayment of the credit you would normally get when you file your 2022 tax return. The IRS will be calculating advance payments based upon your 2019 or 2020 tax information. If your old tax returns do not reflect your situation for purposes of your 2022 taxes, things may get complicated. If you had a significant increase or decrease in salary or a life event like a divorce, it’s possible you could wind up having to repay the advance.

Be Aware of the Advances

The most important thing to be mindful of is that advance payments may have to be repaid if your situation changes on your 2022 taxes. Some people will receive prepayments automatically.

There are two options:

1. Opt-out of the advance via the IRS Child Tax Credit Update Portal. (You can also use the portal to check if you’re enrolled to receive advance payments and to provide updated bank information.)
2. Take the advance and prepare to repay the money if you’re not eligible at tax time.

2022 Child Tax Advance Credit and Divorce

If you’re divorced or in the process of divorce, you’ll want to be mindful of some additional things: you and your ex-spouse may claim your children as dependents in alternating years.

Rather than wind up with a post-judgment litigation over the issue with your spouse, it’s best to discuss how to address the advance now. If you and your spouse are unable to reach an agreement, mediation or collaborative law may be able to help you resolve it outside of court. A divorce attorney at Keith Anthony and/or a tax professional will be able to give you individualized guidance.