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  • Let's say my tax liability for 2021 will be $8,000
  • I have 2 eligible dependents resulting in $6,000 in child tax credits
  • I'm eligible for $4,000 in other tax credits that are non-refundable

My understanding is that the child tax credits for 2021 will be fully refundable (as opposed to prior years where only part was refundable). When I file taxes for 2021, will tax credits be applied in a specific order? This other Q/A for 2019 taxes indicates that ordering doesn't matter. Does that still apply, or is there a change with the adjusted tax credits in 2021? Assume here that I opt out of the monthly payments in 2020 to use the full credit when I file for 2021.

Based on the scenario above, is my tax liability now $0 because the $6,000 is deducted first and the $4,000 is non-refundable. Or, is it -$2,000, resulting in receiving a check for $2,000 when I file?

Secondarily, if I opt to receive 1/2 of the child tax credit in 2020, does that change anything? Instead of having $10,000 in credits when I file, I would have $7,000 in credits (having already received $3,000 in monthly payments July-Dec). In that case, I would then owe $1,000?

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I don't understand how you can think the linked Q "indicates that ordering doesn't matter" when I spent 5 bullets laying out in detail how the order does matter. As you say, CTC was formerly nonrefundable and only ACTC (for a smaller amount) refundable, so that is a change in the specifics though not the concept.

Also, modified-CTC is not the only refundable credit and some 'other' credits were and remain refundable, in which case worrying about their order makes no sense. But IF your other $4k is NOT refundable, then your second option is correct:

#1=first the nonrefundable 'other' of $4k is subtracted from your $8k tax, leaving $4k.

#2=second the now-refundable CTC of $6k, assuming you had no withholding or (estimated) payments, is treated as if it were a payment and compared to that $4k and since you 'overpaid' (without really paying) you get a refund of $2k. If you had withholding or (actual) payments, you would get them back in addition.

If you elect the advance CTC payments this year and receive $3k, then YES that reduces the credit you receive when you file; in this case you will have $8k tax minus $4k nonrefundable credit = $4k minus $3k refundable credit = $1k still due. If that underpayment is actually less than $1k even one dollar you're okay, but if it's equal or more, you are at least in principle subject to the underpayment penalty on form 2210, unless you had no net liability for the prior year i.e. 2020. The underpayment penalty rate isn't definite yet but based on the Fed's "lower for longer" stance it will probably be about 2%, and for that small an amount IRS may decide not to bother posting it and billing you.

Compare If I defer the 2021 child tax credit can I base it on my 2021 income?

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  • You're right, I misspoke. My intention was to relay that we as tax-filers don't get to claim credits in any order we like, but that ultimately non-refundable are always subtracted first. The order in which we qualify chronologically or the order in which we enter them into our tax filing "doesn't matter" because they have a set place to be entered into the form. My other credits are non-refundable, and I will clarify in my question. Thanks for pointing that out. – BobbyScon Jun 16 at 12:23
  • As an aside: As someone who typically uses a web-based tool to compile my information, the numbered lines on the 1040 aren't as obvious, nor is the order they're compiled in. This answer along with the other answer help clear things up tremendously. – BobbyScon Jun 16 at 12:25
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    (1) when during the year things happen generally doesn't matter for tax anywhere -- income, deductions, or credit events -- only if they are in the year or not. For a few things when they occur relative to other things does matter, like wash sale and qualified dividend holding period. The amount of time during the year matters for somet things including CTC, but still not when during the year that time occurs. – dave_thompson_085 Jun 19 at 3:30
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    (2) if you mean tax prep software, that does usually prompt in a seemingly arbitrary order in 'interview' mode, but all I've seen have a 'forms' mode which shows exactly where things come out on the forms, with popups or links detailing how they were derived. Plus IME they always encourage you to print and save an 'as-filed' copy -- which uses the paper form layout, even though your actual electronic filing didn't (it sensibly uses XML). – dave_thompson_085 Jun 19 at 3:33

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