17465: 8812 - CTC, ACTC, and ODC (Drake21)

Schedule 8812 and Wks 8812 are used to calculate and report information required for Child Tax Credit (CTC), Additional Child Tax Credit (ACTC), or the Other Dependent Credit (ODC). Each of these credits has different requirements and thresholds and the software will attempt to carry the dependent to the form based on your entries, however, you should ensure that the form and credits are calculated correctly. A new government website, https://www.childtaxcredit.gov/, is available to assist taxpayers with verifying eligibility and learning more about the expanded credit. 

On screen 2, an override is available via the drop list Override eligibility for Child Tax OR Other Dependent Credit; codes are as follows:

• C - Eligible for Child Tax Credit
• O - Eligible for Other Dependents Credit
• N - Not Eligible for Child Tax Credit OR Other Dependents Credit  

Important: The selection of S on the Qualifying Child for EIC drop-box indicates that "The dependent would be a qualifying child for EIC except that his or her SSN is not valid for work." Since a SSN that is valid for work is required for CTC, this selection will disqualify that child for the Child Tax Credit as well. In most circumstances, this drop list should be blank; see the field help (F1) for details.

After being calculated on Schedule 8812, the amounts flow to Form 1040 as follows:

• RCTC (refundable portion of CTC) to Form 1040, line 28.
• NCTC (nonrefundable portion of CTC) to Form 1040, line 19.
• ODC to Form 1040, line 19.
• ACTC to Form 1040, line 28.

Calculations for the CTC, ODC, and ACTC are pulled from other entries on the return including entries made on screen(s):

• 8812 (reconcile advanced CTC payments and answer for 13B regarding bona fide residence in Puerto Rico)
• 2 (age, relationship, months in home, overrides for eligibility, child specific due diligence questions) 
• 8867 (due diligence questions, answer to question 13A regarding living in the US)

The expanded Schedule 8812 is now three pages for 2021.

• Part I-A calculates the Child Tax Credit and Credit for Other Dependents.
• Part I-B only applies to those filers who checked either 13A or 13B in Part I-A.
• Part I-C applies to those filers who did not check either box 13A or 13B in Part I-A.
• Part II-A calculates the additional child tax credit. This is only used if they were also required to complete Part I-C. 
• Part II-B applies to certain filers with three or more qualifying children. 
• Part II-C shows the amount that is used for line 15c. 
• Part III calculates any additional tax that the taxpayer may owe. This value is based on the amount of advanced payments that they received less what they were eligible for. This is subject to a repayment limitation based on filing status and AGI thresholds (repayment protection). The only data entry required is to complete screen 8812 with the amounts from Letter 6419. The software calculates the repayment automatically. See Topic H for FAQs on the repayment protection. The additional tax is carried to Form 1040, Schedule 2, line 19.

Wks 8812, pages 1-5 are produced when needed to support various calculations related to Schedule 8812. 

Child Tax Credit
Maximum credit is $3,600 per qualifying child under age 6 and $3,000 per qualifying child under age 18. 

The credit begins to phase out at these AGI levels:

• $400,000 MFJ
• $200,000 MFS/S/HOH/QW

A child is a qualifying child for purposes of the child tax credit only if they meet all seven conditions listed in Publication 972, page 3.

The child must be under age 18 by the end of the year and have an SSN that is valid for employment and issued prior to the due date of the 2021 return.

The CTC credit can be refundable or non-refundable depending on the residency of the taxpayer and spouse (if MFJ) during the year. If the taxpayer (and spouse if MFJ) live in the United States for more than half of the year, or are a bona fide resident of Puerto Rico then they are eligible for the refundable child tax credit (RCTC). This applies to taxpayers without regard to earned income amounts (zero income returns qualify for RCTC as long as residency requirements are met). If they did not live in the US for more than half of the year, and were not bona fide residents of Puerto Rico, the taxpayer only qualifies for the non-refundable child tax credit (NCTC). 

• Note: While certain religious groups are exempt from getting an SSN, if the children have valid SSNs (and meet the other requirements) they are eligible for the refundable Child Tax Credit and it is calculated per the form instructions. Generally, the Amish (Form 4029) will accept a non-refundable tax credit that will decrease their tax liability, but not result in a refund. The IRS recently released guidance for these taxpayers and  Drake21 will be updated to allow for this situation. 

Any child tax credit received as an advanced payment during tax year 2021 must be reconciled when filing the 2021 return. Letter 6419 is used to report these Advanced Child Tax Credit payments. See Related Links below for details. 

If a taxpayer wants to return any advanced Child Tax Credit, information on the process may be found in IRS Topic N. 

Additional Child Tax Credit

The software automatically calculates the amount of Additional Child Tax Credit (ACTC) and produces Form 8812 on a qualifying return. The ACTC flows from Schedule 8812 to Form 1040, line 28.

The ACTC is a credit that may be available to a taxpayer who qualified for the non-refundable Child Tax Credit (NCTC), but who did not receive the full amount of the NCTC. The ACTC is a refundable credit, which means that it can produce a refund even if there is no tax liability on the return. 

The ACTC cannot exceed $1,400 times the number of qualifying children, less the NCTC on the taxpayer's return. Within that limit, the ACTC is generally 15% of the taxpayer's earned income over $2,500.

• Note: for taxpayers with three or more qualifying children, ACTC is the greater of:
  • 15% of the taxpayer's earned income over $2,500, or 
  • the excess of the taxpayer's Social Security taxes for the year over the taxpayer's earned income credit for the year.

Other Dependent Credit

Dependents who DO NOT qualify for the Child Tax Credit could be eligible for a non-refundable credit of up to $500 for each qualifying dependent. 

"Other Dependent" facts:

• The qualifying dependent must be a U.S. citizen, U.S. national, or U.S. resident alien.
• Children age 18 or over, including college students, children with ITINs, or other older relatives in the taxpayer's household could qualify.
• Additional limitations apply, per Notice 2018-70:
  • "Section 152(a) of the Code generally defines a “dependent” to mean a “qualifying child” or a “qualifying relative.” Section 152(d)(1) defines a qualifying relative to mean an individual
    • (A) who bears a specific relationship to the taxpayer,
    • (B) whose gross income for the calendar year in which the taxpayer’s taxable year begins is less than the exemption amount (as defined in § 151(d)),
    • (C) who receives over one-half of his or her support from the taxpayer for the calendar year in which the taxpayer’s taxable year begins, and
    • (D) who is not a qualifying child of the taxpayer or any other taxpayer for any taxable year beginning in the calendar year in which the taxpayer’s taxable year begins."

The credit begins to phase out at these AGI levels:

• $400,000 MFJ
• $200,000 MFS/S/HOH/QW