Did you know that you may be able to use Form 8812 to receive the Additional Child Tax Credit — even if you don't owe any federal income taxes? If the total credit amount for all of your qualifying children exceeds the amount of tax you owe for the year, the IRS requires you to prepare Schedule 8812 to claim this amount. Let's take a look at how to prepare and file this form.

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Changes to the Additional Child Tax Credit

For tax years prior to 2018, federal tax law allowed you to claim a Child Tax Credit of up to $1,000 for each qualifying child you claimed as a dependent on your tax return. Beginning in 2018, the Child Tax Credit doubled to $2,000 per qualifying child, and through the Additional Child Tax Credit, you can claim up to $1,400.

Stimulus Impact on the Child Tax Credit for 2021

Child Tax Credit Changes

The American Rescue Plan raised the maximum Child Tax Credit in 2021 to $3,600 for qualifying children under the age of 6 and to $3,000 per child for qualifying children ages 6 through 17. Before 2021, the credit was worth up to $2,000 per eligible child, and 17 year-olds were not eligible for the credit.

The Child Tax Credit changes for 2021 include lower income limits than the original Child Tax Credit. Families that do not qualify for the credit using these income limits are still eligible for the $2,000 per child credit using the original Child Tax Credit income and phase-out amounts.

In addition, the entire credit is fully refundable for 2021. This means that eligible families can get it, even if they owe no federal income tax and completing IRS Form 8812 will not be required for 2021.

New, Temporary Advance Child Tax Credit Payments

The Child Tax Credit has been expanded by the American Rescue Plan Act, which was enacted in March of 2021. Part of this expansion is to advance the 2021 tax credit to families by sending them direct payments during 2021 rather than having them wait until they prepare their 2021 taxes in 2022. Most families do not need to do anything to get their advance payment. Normally, the IRS will calculate the payment amount based on your 2020 tax return. Eligible families will receive advance payments, either by direct deposit or check.

The amount that you receive will be reconciled to the amount that you are eligible for when you prepare your 2021. Most families will receive about one-half of their tax credit through the advance payments. If you receive too little, you will be due an additional amount on your tax return. In the unlikely event that you receive too much, you might have to pay the excess back, depending on your income level.

For updates and more information, please visit our 2021 Child Tax Credit blog post.

If you're doing your 2020 taxes, here's what you should know about Form 8812

Qualifying children requirement

Before you can claim the Additional Child Tax Credit on Form 8812, you must evaluate whether your dependents meet all qualifying child requirements of the original Child Tax Credit. The child can be your:

  • Son
  • Daughter
  • Blood or step sibling
  • Stepchild
  • Foster child or the descendants of any of the above (such as a niece or grandchild)

The child must not turn 17 at any time during the tax year or provide more than half of their own financial support. Finally, each child you claim a credit for must have lived with you for more than half of the tax year. However, even if the child meets all of those requirements, you can't claim the credit unless you claim an exemption for each of them on your tax return; your mere eligibility to claim the child is insufficient.

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Exceptions to the qualifying child requirement

The IRS provides some exceptions to the requirement that the child lives with you for more than half of the tax year. This includes any child that was born but then passed away within the same tax year, as long as your home was where the child had lived.

The IRS also treats your child as living with you when they're away at school or in a juvenile detention facility, or when you're away on business, receiving medical treatment, or on active duty in the military. A noncustodial parent may also claim the credit if the custodial parent agrees not to claim the credit or an exemption for the child.

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Income limitations

If you meet all other requirements but the amount of tax you owe at the end of the year is either zero or an amount that's less than the credit, you can't claim the full Child Tax Credit of $2,000. However, you may be eligible for the reduced Additional Child Tax Credit if you complete Schedule 8812 and attach it to your Form 1040.

For most taxpayers, the credit may be reduced if you have adjusted gross income that's higher than the threshold that applies to your filing status. For example, if you file as single, head of household, married filing separately, or qualifying widow(er) taxpayer for the 2020 tax year and have more than $200,000 in adjusted gross income ($400,000 for joint filers), the credit reduces as the amount exceeding the limit increases.

You must have earned income

When you prepare Schedule 8812 and calculate the Child Tax Credit you're eligible for, you must calculate the amount of gross income that you earn. This amount will be entered on line 6a. Your earned income includes income you receive from work or by actively engaging in a business. It doesn't include most of the taxable income you earn from investing, such as the interest from a savings account or the profit you earn from trading stocks during the year. Unemployment benefits do not count as earned income, either.

Additionally, the Consolidated Appropriations Act (CAA) was signed into law on December 27, 2020, as a stimulus measure to provide relief to those affected by the pandemic. For the tax year 2020, the CAA allows taxpayers to use their 2019 earned income if it was higher than their 2020 earned income in calculating the Additional Child Tax Credit as well as the Earned Income Tax Credit (EITC).

How to file Form 8812

First, complete the Child Tax Credit and Credit for Other Dependents Worksheet that applies to you. You can find instructions on line 19 of your Form 1040. If you qualify for the Additional Child Tax Credit, you'll then complete Schedule 8812 and attach it to your Form 1040.

You'll use Form 8812 to calculate your Additional Child Tax Credit. There are three parts to this form:

  1. Part I should be completed by all filers. In Part I, you'll enter your Child Tax Credit amounts and your earned income.
  2. Part II will only be completed by filers who have three or more qualifying children. To calculate the amount entered in Part II, line 9, there's a worksheet attached to Schedule 8812.
  3. Part III gives you the amount you can claim for your Additional Child Tax Credit. You'll enter this amount on line 28 of your Form 1040.

Keep in mind that if you're claiming the Additional Child Tax Credit with Form 8812, your tax refund may be delayed.

Improper claims

If you claim the Child Tax Credit, Credit for Other Dependents, or the Additional Child Tax Credit in error, you won't be able to claim any of those credits for two years if it’s determined that your error was due to reckless or intentional disregard of the CTC, ODC, or ACTC rules. If the IRS determines the error to be due to fraud, you won't be able to claim any of those credits for 10 years. You'll also likely have to pay penalties for erroneous claims.

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