Frequently Asked Questions (FAQs)

1. What is the Child Tax Credit (CTC)?

The Child Tax Credit is a federal tax benefit designed to assist families with the cost of raising children. The credit is provided for each qualifying child under the age of 17 at the end of the year, or under the age of 18 for the tax year 2021.

2. How has the Child Tax Credit changed over the years?

The Child Tax Credit has evolved over the years. Here’s a brief history:

• For tax years 2017 and prior, the credit amount was $1,000 per child, and the child was required to have a valid Individual Taxpayer Identification Number (ITIN), Social Security Number (SSN), or Adoption Taxpayer Identification Number (ATIN).
• For tax years 2018 to 2020, the credit increased to $2,000 per child, with $1,400 being refundable. The earned income threshold for making the credit refundable was lowered from $3,000 to $2,500.
• For tax year 2021, the credit increased to $3,000 for children ages 6 through 17 and $3,600 for children ages 5 and under by December 31, 2021. The entire credit is refundable for this year, with no earned income required.
• For tax year 2022, the credit is $2,000 per child, and up to $1,500 of it is refundable.

Example: Consider an example of a U.S. Government employee based in Puerto Rico. They have two children aged 7 and 5 in the tax year 2021. They would be eligible for a CTC of $3,000 for their 7-year-old and $3,600 for their 5-year-old, totaling $6,600. If they have a tax liability of $4,000, their tax bill would reduce to zero, and they could potentially receive a refund of the remaining $2,600.

3. What are the requirements for claiming the Child Tax Credit in 2021?

In 2021, to claim the Child Tax Credit:

• The qualifying child must have a Social Security Number (SSN) issued before the due date of the return (including extensions).
• The taxpayer and spouse, if filing jointly, must have a valid SSN or ITIN issued by the due date of the return (including extensions).
• There are income limits for eligibility. The total of the Child Tax Credit is phased out by $50 for each $1,000 (or fraction thereof) the Adjusted Gross Income (AGI) exceeds $150,000 in the case of a joint return/qualifying widow(er), $112,500 if Head of Household, $75,000 for all other filing statuses.

4. What does the term “phase-out” mean?

“Phase-out” refers to the gradual reduction of a tax credit as a taxpayer’s income exceeds certain thresholds. The higher your income, the less credit you may be eligible for.

5. Who qualifies as a child for the Child Tax Credit?

A qualifying child for this credit is someone who:

• Is claimed as a dependent on your tax return.
• Is a son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of any of them (for example, your grandchild, niece, or nephew).
• Is under the age of 17 (or under the age of 18 for tax year 2021) at the end of the tax year.
• Was a U.S. citizen, U.S. national, or a U.S. resident alien.

6. How does the CTC affect U.S. Government employees in Puerto Rico?

U.S. Government employees in Puerto Rico can claim the Child Tax Credit to reduce their federal tax liability. If the credit exceeds their tax liability, they can claim the difference as a refund.

7. How can I claim the Child Tax Credit?

To claim the Child Tax Credit, file Form 1040 with the IRS. U.S. Government employees in Puerto Rico also need to file Forms 481/482 with the Department of Hacienda – Puerto Rico.

8. Can I retroactively claim the Child Tax Credit?

The “Protecting Americans from Tax Hikes (PATH) Act of 2015” prohibits an individual from retroactively claiming the child tax credit for any year in which the taxpayer, spouse, or qualifying child did not have a valid Tax Identification Number (TIN) issued on or before the due date or extended due date of the return.

9. Can bona fide residents of Puerto Rico who are not U.S. Government employees claim the Child Tax Credit?

No, the Child Tax Credit is not available on Form 1040 to bona fide residents of Puerto Rico who are not U.S. Government employees.

10. What is the Additional Child Tax Credit?

The Additional Child Tax Credit (ACTC) is a refundable credit that you may receive if your Child Tax Credit is greater than the total amount of income taxes you owe, as long as you had earned income of at least $2,500.

11. What is the Credit for Other Dependents (ODC)?

The Credit for Other Dependents (ODC) is a tax credit available for dependents who do not qualify for the Child Tax Credit. This credit is for tax years 2018 – 2025 and is claimed on Schedule 8812. The credit amount under IRC 24 is $500.

12. What is Form 1040 and Schedule 8812?

Form 1040 is the U.S. Individual Income Tax Return. It is the standard federal income tax form used to report an individual’s gross income.

Schedule 8812 is the form used to calculate and report both the Child Tax Credit and the Additional Child Tax Credit. For certain tax years, it’s also used to calculate the Credit for Other Dependents.

13. What are the filing requirements for U.S. Government employees in Puerto Rico?

U.S. Government employees in Puerto Rico must file their Form 1040 with the IRS and their Form 481/482 with the Department of Hacienda – Puerto Rico. They can qualify for Child Tax Credit and the Additional Child Tax Credit.

14. What if I do not have a Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN)?

For the Child Tax Credit, the qualifying child must have a SSN issued before the due date of the return (including extensions). The taxpayer and spouse, if filing jointly, must have a valid SSN or ITIN issued by the due date of the return (including extensions).

15. How is the Child Tax Credit phased out?

The Child Tax Credit is reduced or phased out if your Adjusted Gross Income (AGI) exceeds certain limits, which vary by tax year and filing status. The credit is reduced by $50 for each $1,000 (or fraction thereof) by which your AGI exceeds the phase-out threshold.

16. Are there different rules for the Child Tax Credit for different tax years?

Yes, the rules for the Child Tax Credit vary based on the tax year. Changes in law, such as those enacted in response to the COVID-19 pandemic, have temporarily altered the credit amount, refundability, phase-out thresholds, and other aspects of the credit.

17. Is the Child Tax Credit refundable?

The Child Tax Credit may be both a non-refundable and a refundable credit. If the credit exceeds the tax liability, U.S. Government employees in Puerto Rico can claim the difference as a refund.

18. Where can I find more information about the Child Tax Credit?

For more detailed information on how to compute the Child Tax Credit, refer to the Form 1040 instructions and Publication 972, Child Tax Credit. You can also refer to the IRS guidelines IRM 21.8.1.6.3 (10-01-2022) for a comprehensive explanation of the Child Tax Credit rules.

Remember, every taxpayer’s situation is unique, and this guide serves as an overview. For more specific inquiries regarding your situation, please consult a local tax professional or refer to IRM 21.8.1.6.3 (10-01-2022) for further details.