Changes to the Child Tax Credit
In recent months, there were changes made to the child tax credit that will benefit many taxpayers. Significant changes to the child tax credit were included as part of the American Rescue Plan Act that was enacted in March 2021. The biggest changes mean that the child tax credit:
Amount has increased for certain taxpayers
Is fully refundable (you can receive it even if you don’t owe federal income tax)
May be partially received in monthly payments
The American Rescue Plan legislation also increased the age for qualifying children to 17 from 16, meaning some families will be able to take advantage of the credit longer.
The IRS will pay half the credit to certain taxpayers with advance monthly payments beginning July 15, 2021. Taxpayers will claim the remaining half of their credit when they file their 2021 income tax return.
How much to expect
The child tax credit and advance payments are based on several factors, including the age of your children and your income.
The credit for children ages five and younger is up to $3,600 – with up to $300 received in monthly payments.
The credit for children ages six to 17 is up to $3,000 – with up to $250 received in monthly payments.
To qualify for the child tax credit monthly payments, you (and your spouse if you file a joint tax return) must have:
Filed a 2019 or 2020 tax return and claimed the child tax credit or given the IRS your information using the non-filer tool
A main home in the U.S. for more than half the year or file a joint return with a spouse who has a main home in the U.S. for more than half the year
A qualifying child who will be under age 18 at the end of 2021 and who has a valid Social Security number
Income less than certain limits
You can take full advantage of the credit if your income (specifically, your modified adjusted gross income) is less than $75,000 for single filers, $150,000 for married filing jointly filers. The credit begins to phase out above those thresholds.
IRS’s child tax credit update portal
Taxpayers generally won’t need to do anything to receive any advance payments as the IRS will use the information it has on file to start issuing the payments. The IRS has created a child tax credit and update portal which taxpayers can use to update any information that might impact their child tax credit amount, such as filing status or number of children. Parents may also use the online portal to check on the status of the advance payments or to opt out of them.
Currently, these changes to the child tax credit are temporary and only apply to the 2021 tax year. While many families will receive increased credit amounts, the introduction of the advance monthly payments will mean that some taxpayers may receive a smaller refund than they would expect when they file their 2021 tax return.
Have more questions? Schreiber Accounting and Advisory can help you understand how the changes to the child tax credit will affect your tax situation. Check out the firm’s tax services and contact the firm for more information.
Material discussed is for informational purposes only. It is not to be interpreted as investment, tax, or legal advice. Individual situations vary, and this information should only be relied upon when coordinated with individual professional advice.