QUALIFYING CHILD
You can claim the credit only for a “qualifying child.” There are 5 tests for a qualifying child and you must meet all of them. A qualifying child who meets the 5 tests:
1 Age test. The child must be under age 18 by the end of the 2021. This age limit applies even if a child is disabled (but such an older child may be a qualifying dependent explained later).
2 Residence test. The child must have the same principal residence as you for more than half the tax year. There are some exceptions in certain cases for a child of divorced or separated parents, a kidnapped child, temporary absences, and for a child who is born or dies during the year.
3 Support test. The child does not provide more than half of his or her support.
4 Social Security number. No credit is allowed unless the child has a Social Security number. The Social Security number must be issued on or before the due date of your return. A Social Security card that is labeled “not valid for employment” (i.e., it is only good for purposes of receiving federal benefits, such as Medicaid) is not treated as a valid Social Security number for purposes of the child tax credit.
5 Nationality. The child must be a U.S. citizen or national, or a resident of the United States. The person can't be a resident of Canada or Mexico.
QUALIFYING DEPENDENT
You may claim the $500 nonrefundable child tax credit for a qualifying dependent. A “qualifying dependent” is a person who is not a qualifying child and who is viewed as a dependent (even though there is no dependency exemption). More specifically, a dependent is a qualifying relative. There are 5 tests for being a qualifying relative, all of which must be met:
1 Relationship test. The person must be your child (including adopted or step); your grandchild or great‐grandchild; in‐law (son, daughter, father, mother, brother, or sister); parent or stepparent; sibling (including step and half); and aunt, uncle, niece, or nephew if related by blood.
2 Gross income test. For 2021, this means having gross income exceeding $4,300.
3 Support test. You must provide more than half of the person's support for the year.
4 Qualifying child test. The person cannot be a qualifying child for you or any other taxpayer.
5 Residency test. The qualifying dependent must be a U.S. citizen, national, or resident of the United States. The person can't be a resident of Canada or Mexico.
MAGI LIMIT
You must have modified adjusted gross income (MAGI) below a set amount. The credit you are otherwise entitled to claim is reduced or eliminated if your MAGI exceeds a set amount. MAGI for purposes of the child tax credit means AGI increased by the foreign earned income exclusion, the foreign housing exclusion or deduction, or the possession exclusion for American Samoa residents.
The credit phases out in 2 stages: first for the amount above $2,000 and then for the remaining $2,000. The credit amount above $2,000 is reduced by $50 for each $1,000 of MAGI or a fraction thereof over the MAGI limit for your filing status. The phaseout begins if MAGI exceeds the limits found in Table 1.1. The remaining $2,000 credit phaseout limits are in Table 1.2.
Example
In 2021, a single parent with one qualifying child age 4 has MAGI of $100,000. The $3,600 credit is reduced to $2,350 (reduction is $1,250, which is $25,000 excess MAGI over the applicable threshold ÷ $50).
TABLE 1.1 Stage 1 Phaseout of the Child Tax Credit over MAGI Limits in 2021
| Filing Status | MAGI Limit |
|---|---|
| Married filing jointly | $150,000 |
| Head of household | $112,500 |
| Single | $ 75,000 |
TABLE 1.2 Stage 2 Phaseout of Child Tax Credit over MAGI Limits in 2021
| Filing Status | MAGI Limit |
|---|---|
| Married filing jointly | $400,000 |
| Other filing status | 200,000 |
ADDITIONAL CHILD TAX CREDIT
If you can't meet the residency test discussed earlier, you may still qualify for a child tax credit that exceeds your tax liability and is refundable to you. The basic child tax credit amount for those not meeting the residency test is $2,000; income limits apply. The refundable portion is limited to $1,400, but no more than either:
15% of earned income in excess of $3,000, or
For those with 3 or more qualifying children, the excess if any of Social Security taxes over the earned income credit.
Planning Tips
The child tax credit and the credit for other dependents should be factored into income tax withholding from paychecks to enjoy the tax savings throughout the year. The amount of the child tax credit in 2022 will be lower unless Congress makes a change. But you may still file a new Form W‐4 with your employer to factor in the applicable child tax credit into your withholdings for the year.
If you know you will become entitled to claim the credit (e.g., you expected the birth of a child), you may wish to adjust your withholding so that you don't have too much income tax withheld from your paycheck. Increase your withholding so that less income tax is withheld from your pay by filing a new Form W‐4, Employee's Withholding Certificate, with your employer. There is a Tax Withholding Estimator at https://www.irs.gov/individuals/tax-withholding-estimator to help you complete Form W‐4.
If you can't claim a credit for a qualifying child because the child doesn't have a valid Social Security number, you may be able to claim the credit for a qualifying dependent. For example, if there is another taxpayer identification number (e.g., Adoption Taxpayer Identification Number, or ATIN), you may be eligible for the $500 credit.
Pitfalls
If you had a change in income, dependents, filing status, or residency, you may have received more in advance payments of the child tax credit than what you are actually entitled to, based on 2021 income, dependents, filing status, and residency. You may have to repay some or all of the excess advance payments received.
There's no repayment required if your modified adjusted gross income (MAGI) for 2021 does not exceed $40,000 for singles, $50,000 for heads of households, or $60,000 for joint filers as long as your principal place of abode was in the U.S. for more than half the year.
