The Child Tax Credit, which eligible parents have been claiming on their tax return for many years, was enhanced last year, and I urge everyone with children to be extra careful this tax filing season because the changes can cause you significant tax headaches if you don’t report the credit correctly.

The Child Tax Credit was increased to as much as $3,600 per child in 2021. That’s simple enough. The complicating factor is that many eligible taxpayers received advance Child Tax Credit payments from July 2021 through December 2021. These payments, as the name implies, were advances towards the tax credit to be claimed on the 2021 tax return.

For example, if you have one eligible child that was age 5 or under at the end of 2021, that child will be eligible for a credit of up to $3,600, and if you have another child between the ages of six and seventeen at the end of 2021, that child will be eligible for a credit of up to $3,000. If, according to IRS records, they believe you are eligible for the entire credit, your 2021 Child Tax Credit is expected to be $6,600. Since the IRS believes you’re eligible for the entire credit, you should have received $550 per month last July through December, or total payments of $3,300.

Ultimately, your eligibility for the credit is determined on your 2021 tax return. These credits are subject to income limits, and the amount of credit is reduced as your income increases. The maximum credit is reduced once your income exceeds $150,000 if married filing jointly or $112,500 if filing Head of Household.

If you received any advanced payments, you should receive IRS Letter 6419, which will detail the payments sent to you. Additionally, you can check your IRS Online Account to verify the payments. In either case, you should include any advance payments with your tax records and verify that the correct amounts are reported. Failure to report these payments accurately will result in processing and refund delays.

The IRS has reported that a limited number of taxpayers may receive letters with incorrect information. These taxpayers moved or changed bank accounts in December 2021, and their payments were returned or rejected. If this happened to you, your online account should report the correct amount of payments you received.

If you are married filing a joint return, each spouse should receive a separate letter, and the letter will report one-half of the payments, so you will need to combine the amount on your letter with the amount reported on your spouse’s letter to accurately report the total received.

Once you determine the amount of payments you received, you will need to determine the amount of credit you’re eligible to receive. If you’re eligible for more credit than the advance payments you received, you’ll claim the additional credit on your tax return.

I’ll cover what happens if you have received more in advance payments than your 2021 Child Tax Credit in next week’s article.