For Puerto Rico residents, the Child Tax Credit (CTC) underwent significant changes for the 2021 tax year, primarily due to the enactment of the American Rescue Plan Act of 2021 (ARP). Here are the key changes:
- Eligibility Expansion: Prior to 2021, bona fide residents of Puerto Rico needed to have at least three qualifying children to claim the CTC. Starting in 2021, this requirement was removed, allowing residents with one or more qualifying children to claim the credit.
- Fully Refundable Credit: For the 2021 tax year, the CTC became fully refundable for bona fide residents of Puerto Rico. This means that even if a resident had no income or paid no U.S. Social Security taxes, they could still claim the full amount of the credit.
- Credit Amounts: The ARP increased the credit amounts for 2021. Residents could receive up to $3,600 for each qualifying child under the age of 6 and up to $3,000 for each qualifying child aged 6 to 17 at the end of 2021.
- Advance Payments: Section 7527A(a) of the ARP required the Secretary of the Treasury to establish a program for making periodic advance payments of the CTC. However, advance payments were not applicable to residents of Puerto Rico as per section 7527A(e)(4)(A).
- Simplified Filing Procedures: The IRS provided simplified procedures (Rev. Proc. 2022-22) to make it easier for bona fide residents of Puerto Rico to claim the CTC. These procedures allowed eligible residents to file using Form 1040-PR, Form 1040-SS, or other 1040 series forms, and they were not required to report their modified adjusted gross income (AGI) on certain lines of these forms.
- Reduction for Advance Payments: Bona fide residents of Puerto Rico who received advance CTC payments during 2021 had to reduce the amount of the CTC claimed on their tax return by the total amount of those advance payments.
- Qualifying Child Definition: A "CTC qualifying child" for 2021 was defined as a qualifying child under section 152(c) who had not attained the age of 18 by the end of the tax year.
These changes aimed to provide greater financial support to families in Puerto Rico by making the CTC more accessible and beneficial.
Sources:
§ 24. Child tax credit
Notice 2021-24
Procedures to Claim Child Tax Credit Simplified for Puerto Rico Residents
Rev. Proc. 2022-22
