More Puerto Rican families will qualify this year for the federal child tax credit, known in English as the Child Tax Credit (CTC). This thanks to some amendments to the federal law approved during the year 2021 as an additional benefit to counteract the negative economic effects caused by the covid-19 pandemic.
These changes are applicable for the 2021 tax year, whose return is now filed in the year 2022. The CTC is a federal credit that is provided to fathers and mothers of families to reduce their tax burden in consideration of the dependents they have at their position. The credit is refundable and tax-exempt, therefore, if the federal income tax is less than the available credit, then the federal government will refund the difference to the taxpayer by check or direct deposit to their bank account.
In most cases, a father or mother who is a resident of Puerto Rico does not pay federal income tax because the income generated during the year usually comes only from sources in Puerto Rico. Therefore, most residents of Puerto Rico would receive the credit through a refund from the Federal Internal Revenue Service (IRS). People who are residents of Puerto Rico must file a federal form in order to request and obtain the CTC. In case the federal form is filled out only to request the CTC, the form that must be filled out is Form 1040-PR. The CTC has been available to residents of Puerto Rico since 2000, but why will many more families qualify for this credit for tax year 2021 and in a larger amount?
1. You no longer need three dependents to get the credit. Historically, for fathers and mothers of families in Puerto Rico to qualify for the credit, it was required that it be claimed for a minimum of three dependents. As of the 2021 return, the three dependents are no longer required and with only one dependent you can request the benefit.
2. The maximum possible credit increases from $1,400 to $3,600. Prior to 2021, the maximum refundable credit per dependent was $1,400. For 2021 only, the maximum credit is $3,600 for dependents ages 5 and under, or $3,000 for dependents ages 6 through 17. The age of the dependent to determine the applicable credit is determined as of December 31, 2021.
3. It is not necessary to have a minimum income to qualify for the credit. Even if the taxpayer has no income during the year 2021, he could qualify to receive the benefit for qualified dependents. In order to obtain the CTC in previous years, it was necessary to have income since the credit was limited by the contributions made to Social Security. This limitation does not apply for the year 2021.
Only dependents of the taxpayer —children or siblings— or descendants of these —including grandchildren and nephews— who are 17 years old or younger, as of December 31, 2021, who live with the taxpayer more than half of the year, that the taxpayer provides more than half of their support, and that they have a valid Social Security number.
The CTC begins to be reduced, until eliminated, if the taxpayer’s income exceeds $150,000, in the case of married persons filing jointly; $112,500 and $75,000 in the other cases.
With these changes, for example, a single mother with two teenage dependents could obtain an economic benefit of up to $6,000 for the year 2021 through the CTC exempt from paying taxes. Previously, this single mother was not eligible for the credit because she did not have three qualified dependents.
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