Child Tax Credits Extended to More Families in Puerto Rico

Puerto Rican families can now claim the full Child Tax Credit even if they have only one child and no taxable income. Here’s how to claim the credit.

Since it was established in 1997, the Child Tax Credit (CTC) has been gradually increased in size and made more refundable to U.S. families with children. However, the majority of individuals residing in Puerto Rico, an “unincorporated territorial possession” of the U.S., have not had access to the CTC, as only families with three or more qualifying children were eligible. Until the American Rescue Plan, passed in March of 2021, which extends the availability of the CTC to all families in Puerto Rico with children as of tax year 2021.

The American Rescue plan also increased the credit: from $2,000 per qualifying child to $3,600 for children ages 5 and under at the end of 2021, and $3,000 for children ages 6 through 17 at the end of 2021. The CTC is also now fully refundable, meaning that for tax year 2021, bona fide residents of Puerto Rico can claim the full credit amount, even if they had no income and paid no U.S. Social Security taxes. This is especially noteworthy, as Puerto Rico’s families didn’t receive monthly advance payments for the CTC in 2021. As such, those filing will receive the entire expanded credit in a lump sum.

On May 6, 2022, the IRS released guidance for claiming the credit for residents of Puerto Rico in IR-2022-105. Whether or not they have an existing 2021 federal tax filing requirement, they must file one of four federal 1040 tax forms: Form 1040-PR, Form 1040-SS, Form 1040, or Form 1040-SR. Any one of the forms can be used to claim the CTC, even after the April 18, 2022 filing deadline. Qualifying residents of Puerto Rico who do not owe taxes to the IRS can still file a 1040 return and claim the CTC without penalty until April 15, 2025.

For residents who have children but do not have a federal tax filing requirement for the 2021 tax year, the IRS issued Revenue Procedure 2022-22, which simplifies the filing process for residents of Puerto Rico:

• For Form 1040-PR and Form 1040-SS: Follow the instructions except for the requirement to report modified adjusted gross income on line 1 of Part I.
• For Form 1040 and Form 1040-SR: Follow the form instructions except for the requirement to report modified adjusted gross income on lines 1 through 3 of Schedule 8812, “Credits for Qualifying Children and Other Dependents.”

Resident families of Puerto Rico can use the simplified methods if:

Schedule LEP for Form 1040, “Request for Change in Language Preference,” may also be filed with the return to request a change in language preference for any further communications from the IRS.

For more information, reach out to your HBK Tax advisor for more information at 239-482-5522, or email Calvin at cle@hbkcpa.com.