More people are eligible this year to receive the Child Tax Credit in 2021 as part of the American Rescue Plan. If you claimed the Child Tax Credit for 2020, you received it as a dollar for dollar offset to your tax liability when filing your taxes. For the 2021 tax year, the IRS will send out 50% of that credit to eligible families with six monthly payments in lieu of receiving the credit at 100% when filing 2021 taxes.
Eligibility criteria for the Child Tax Credit (CTC) is temporarily expanded and the credit amount is also higher for the 2021 tax year. Around 88% of households with children in the United States are eligible to claim the credit, and those who did not qualify in previous years for the credit are more likely to be eligible to claim it this year. The IRS has started to mail letters to families that are eligible for the credit based on their 2020 tax return.
Eligibility and Advance Payment Amounts
It is important to know that the IRS will determine eligibility and the total amount of the credit for each qualifying child based on tax returns filed for the year 2020, or 2019 if the 2020 return has not been filed. Eligible families will soon receive a second letter from the IRS listing an estimated amount of the monthly payments they will receive. The advance payments will in total equal 50% of the IRS’s estimate of your credit amount for 2021. The additional 50% can be claimed when filing the 2021 tax return in 2022.
Higher Child Tax Credit for 2021
An important change to the Child Tax Credit for 2021 is an increase in the amount of the credit and expanded eligibility because of higher thresholds. Eligible families can receive up to $3,600 for each child under the age of six, and up to $3,000 for children between the ages of 6 and 17. Previously, the credit did not apply to children aged 17. In 2020, the amount of the CTC was up to $2,000 per qualifying child under the age of 17 at the end of the year. For 2021, as long as a child does not turn 18 before the end of 2021, they will be eligible for the credit. This means you may receive a credit this year for a qualifying child that you wouldn’t have been able to receive in 2020.
Monthly Payments Begin July 15th
The advance Child Tax Credit payments will be distributed as monthly payments starting on July 15th, 2021, with the final payment made on December 15, 2021. The payments will be distributed through direct deposit, paper check, or debit cards. The IRS urges people with children to file their 2020 tax returns as soon as possible to make sure they’re eligible for the appropriate amount of the CTC as well as any other tax credits they’re eligible for. Filing electronically with direct deposit also can speed refunds and future advance CTC payments. If your address has changed since you last filed your tax return, create an account with the IRS to update your information by visiting https://www.irs.gov/payments/view-your-tax-account .
Phase-Out Limits & Overpayments
The increased amount of the credit (i.e. $1,600 for children under 6 and $1,000 for other eligible children) is phased out upon reaching a modified AGI of over $75,000 for single filers, $112,500 for head-of-household filers, and $150,000 for joint filers and surviving spouses. This means that after reaching these income levels, taxpayers will receive less than the full amount of the credit for each child.
Unlike the two stimulus checks issued, in cases where custody of a child is shared only one parent can claim the credit for a child. Another change from the stimulus checks is you will have to pay the IRS back for any overpayment you receive. For example, if you incorrectly claim a child for the advance payments, you will have to pay back any amount you’re not entitled to.
IRS Portals Coming Soon to Opt-Out or Update Your Information
The IRS announced on June 7th that they will be creating a portal that allows eligible families to opt-out of receiving the advance payments and receive the full amount of the Child Tax Credit and instead receive the full credit amount when filing their 2021 tax return in 2022. Opting out might be the best choice for you if you know your tax situation will change, or you have concerns that the advance payments might end up being an overpayment that you’ll have to pay back next year.
Another helpful portal will soon be introduced that allows eligible families to update their information used by the IRS to estimate the advance payment amounts. It will be important to use the tool to update changes in your income, filing status, number of qualifying children, adding a baby that will be born in 2021 as a eligible dependent for the credit, and updating your direct deposit information. Using this tool to update this information will ensure that you receive the correct amount as quickly as possible.
Upcoming Child Tax Credit Updates
The IRS will release more information on this advanced tax credit payment as it becomes available on their website. Follow this link to learn more: https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021
