 Income tax 2021-2022, credits for qualifying children and other dependents overview, part number one. Get ready to get refunds to the max, dive into income tax 2021-2022. Most of this information can be found in the Schedule 8812 Instructions Tax Year 2021 on the IRS website, irs.gov, irs.gov. Income tax formula were down here in the credit area down below. Quick recap of the formula, everything above the taxable income, you can think of as a strange or modified income statement, income minus the deductions to get to the taxable income. Then we've got the progressive tax system and so on to calculate the actual tax. You would think then after that point in time you would just have the payments that you were be making to calculate the amount that would be refunded or the amount that would be owed. But we have more complexity even on the bottom half of the calculation here including other taxes which we talked about in the past which might include things like the self-employment tax for example and then we have the credits as well down here that are kind of commingled with the payments as we can see. Now the credits just in general we think of credits as taxpayers as like good and the fact that they're good for us is similar to the deductions. Deductions and credits are good but if you had one dollar of credit versus one dollar of deduction the credit would generally be more good because if it was a deduction it would simply be reducing the taxable income whereas if it's a credit that you actually get to take then you get that full dollar of benefit. That's why the credits can be similar to payments with regards to the actual tax calculation because it's similar to as if you actually paid the government or withheld that dollar in terms of you're going to basically get that dollar or benefit back if you get the credit for it. So they're kind of commingled down here with the payments which can be a little bit confusing. We also have the added level of confusion in that the credits might have a they might be either refundable or non-refundable non-refundable or refundable and or they might have a non-refundable and refundable portion to them. So if it's non-refundable that means you're going to get a credit but not pass the point in time that you actually owe taxes. So in other words it has to be a refund not like a benefit program they're not you're not going to get a the payment back if it's not a refund component whereas if it's a refundable then that amount of the credit could actually take you past and beyond the point where you actually owe any taxes so it's more like a benefit program if you go past that point because it's not a refund it's basically you're getting money the taxes the government is paying you they're not giving you a refund of the overpayment at that point in time. So keeping that in mind we then look at the tax return that's why page two of the tax return is also quite complex so we had page one of the tax return can be kind of complex of course because we're calculating the the taxes the actual taxable income page two not just the payments that are being calculated here but we calculate the actual tax and then we got the credits and other taxes that could be involved so still a lot of stuff going on over here. So specifically here we're looking at line 19 the non-refundable child tax credit or credit for other dependents which is from schedule 8812 so obviously schedule 8812 is a place you can go for the instructions to get more information and then we're down here at line 28 where we have the child tax credit or additional child tax credit from form 8812 and this is basically the refundable component. So we have the credits for qualifying children and other dependent overview. Now note that these two things are kind of combined together because you want to be thinking about about the dependent first as to whether they're going to qualify as a child, if they qualify as a child, then you want to think about if you're going to get if you're going to get the child tax credit with relation to it and then if not then you're going to think whether or not you get the other dependent credit related to it if they're not a child then you want to see if they qualify as a non-child which you might get the other dependent related to it so you want to have the process in your mind of saying that's the hierarchy that you would be looking at because that's the hierarchy that you would get the most benefit from, first being a child, then whether the child would qualify for the child tax credit, which would be the biggest portion. And if not, do they qualify for the other credit? And if they're not a child, are they another dependent where they could then possibly qualify for the other dependent credit? So we're going to use Schedule 8812, Form 1040, to figure your child tax credit to report advanced child tax credit payments. You received in 2021 and to figure any additional tax owed if you receive excess advanced child tax credit payments during 2021. Now in 2021, they imposed or they put the new law in place where they gave out the advanced child tax credits. This is a new thing. We've never seen it before. So it's expected that people might get this confused. When they did that, we were used to the child tax credit in prior years. So we've seen the child tax credit in prior years, but they adjusted the child child tax credit in the current year, increasing the amount, making a big refundable portion of the credit, and then gave out advanced payments. And so therefore in the current year of 2021, we've got to determine what the child child tax credit is, which is a different calculation from the prior year. And then we've got to determine how much we received in the advanced payments so that we can net that out to see how much benefit we're still going to get. Now in general with the advanced payments, they tried to increase the credit so that they can give out the advanced payments. And I believe they tried to make the advanced payments be basically half of what the credit calculation should be so that you should still get a benefit when you file the tax return of basically half what the calculation of the child tax credit would be by taking the full child tax credit, subtracting out the advanced payments, and you'd still basically have a benefit, which would be the other half of the child tax credit. Okay, so for taxpayers meeting certain residency requirements, these credits are refundable child tax credit, the RCTC, and non-refundable credit for other dependents, the ODC. So the child tax credit, they made it the refundable component for it. If they don't qualify for the child tax credits and you qualify for the other dependent credit, you've got the non-refundable credit, meaning it can't take your liability below that zero threshold. Also just realize that with regards to the advanced child tax credit payments, the IRS should have given you a letter for that or the taxpayer a letter. And if you don't have that, you can try to get onto the account on your IRS website and log in to the IRS website to get that advanced payment information. For other taxpayers, these credits are a non-refundable child tax credit, NCTC, the ODC, and a refundable additional child tax credit, the ACTC. So what's new? Schedule 8812 Form 1040, they have a lot of changes. The Schedule 8812 Form 1040 and its instructions have been revised to be the single source for figuring the reporting, the child tax credit, and credits for other dependents. In other words, this is where you want to go instead of basically the Form 1040 instructions, which kind of summarized it before, but because they have substantial changes, you want to look on the Schedule 8812. The instructions now include all applicable worksheets for figuring these credits. As a result, Publication 972 will not be revised. So they're not 972 another source to go to. Now we're to go into your Schedule 8812. For prior years, versions of Publication 972 go to the IRS.gov. So if you go into prior years, then like 2020 that you need to file, then it's going to be completely, it's going to be different because they made a lot of changes in 2021. You might want to go to that Publication 972 enhanced child tax credit for 2021. The child tax credit applies to qualifying children who have not attained age 18 by the end of 2021. So notice key component here, by the end of 2021, tax software can obviously help us with these calculations on the cutoffs with the age requirements. Also the initial amount of the child tax credit is increased to $3,600 for each qualifying child who has not attained age six. So we've got this two-tier kind of cutoff for the qualification. So age six by the end of 2021 and 3,000 for each other qualifying child who has not attained age 18 by the end of 2021. But note that they tried to take some of that, give the advanced payment and give it out in advanced payments over the last six months of 2021. So you would think that if you had one child that would qualify for 3,600 that you would calculate the 3,600 and then would have already received half of it in the form of six checks throughout 2021, which you could find on the IRS website to see what the advanced payments were. And then the difference, the remaining amount you would expect you'd still get a benefit from when you file the tax return in 2022 for tax year 2021. The credit for other dependents has not been enhanced, so they didn't do much with the other dependents they were focusing in on the qualifying children. So what's new, simplified refundable child tax credit? If you meet certain residency requirements, your child tax, your child tax credit will be fully refundable, even if you received no income. So that's a huge change and it made it easier for them to send out the advanced payments. So that means you've got it refundable. So even if you don't owe any taxes, you could still get money. So it's not really a refund. In that case, it's kind of a benefit program. If you do not meet the residency requirements, you will figure your child tax credit and additional child tax credit in a manner similar to how these credits were figured in years prior to 2021. So then you could have the non-refundable portion of it. So we got letter 6419. If you received advanced child tax credit payments during 2021, you will receive letter 6419. Keep this letter with your tax records. So this is their attempt to try to remind people that they got an advanced payment, which they've never seen before, that they're going to have to take in, you're going to have to, taxpayers have to take into consideration when figuring their child tax credit. If you don't get that letter or you can't find that letter, then you want to log into the IRS website into your account and you can get that information there, hopefully as well. So you will use the information in this letter to figure your child tax credit on your 2021 tax return or the amount of additional tax you must report on schedule two. Note that if you didn't get that letter, it's unusual if you had the child on your 2020 tax return because the IRS should have then given up the advanced payments you would think. So, so given the fact that your 2020 had been reported, you had a qualifying child on it, for example, you would think you would have the advanced payments. If not, you might want to double check that additional tax on excess advanced child tax credit payments. If you received advanced child tax credit payments during 2021 and the credits were figured using schedule 8812 are less than what you received, you may owe an additional tax. So it's possible then, once again, that you got more advanced payment than, than your actual child tax credit. It's unlikely, but possible because again, we can imagine where there's many, there's many situations where the custody situation could have the tax return possibly on a different return in the following year and they mistakenly gave the advanced payments to the wrong person and they're going to want the money back in that case. So complete schedule 8812 to determine if you must report an additional tax on schedule two form 1040. Reminders, delayed refund for returns claiming ACTC advanced child tax credit. The IRS cannot issue refunds before mid February 2022 for returns that properly claim ACTC advanced child tax credit. This timeframe applies to the, to the entire refund, not just the portion associated with the ACTC advanced child. So that means that these, these refundable credits are huge kind of bait for fraudsters out there. And so what they're trying to do is delay the returns a little bit to give them a little bit more time possibly to, to identify fraudulent type of returns. So it might take a little longer just because of those advanced payment items. So abbreviations, the following abbreviations will be used and these instructions when appropriate. So if you hear these abbreviations, they're going to be more and more common or they have been, at least for the last couple of years, the ACTC means additional child tax credits. So you can just imagine that you've got the CTC, the child tax credit. And then the A-T-I-N means adoption taxpayer identification number. The I-10 means the individual taxpayer identification number. The N-C-T-C means non-refundable child tax credits. The O-D-C means the credit for other dependents. So that's the one that you would get if you, if you can't get, you know, the child tax credit. The R-C-T-C means the refundable child tax credits. So that's the part of the child tax credit that's refundable, meaning it could go basically below zero. The N-C-T-C, the non-refundable child tax credit, meaning you're not going to get that benefit from that portion of it if your tax liability goes below zero. The S-S-N means the social security number. And the T-I-N means the taxpayers identification number. A-T-I-N may be an A-10, A-T-I-N, or I-10, I-T-I-N, or a social security number.