As part of the American Rescue Plan Act that was enacted in March 2021, the child tax credit:
- Amount has increased for certain taxpayers
- Is fully refundable (meaning you can receive it even if you don’t owe the IRS)
- May be partially received in monthly payments
The new law also raised the age of qualifying children to 17 from 16, allowing more families to take advantage of the credit.
These tax changes are temporary and only apply to the 2021 tax year. It is important to note that the monthly advance of the child
tax credit is a significant change. The credit is normally part of your income tax return and helps to reduce your tax liability. The
choice to have the child tax credit advanced will affect your refund or amount due when you file your return.
Qualifications and How Much to Expect
The IRS will pay half the total credit in the form of six advance monthly payments beginning July 15, 2021. Taxpayers will then claim the other half when they file their 2021 income tax return. 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 increased to $3,600 - with up to $300 received per month for six months, for a total of up to $1,800 per child in advance payments.
- The credit for children ages six to 17 is increased to $3,000 - with up to $250 received per month for six months, for a total of up to $1,500 per child in advance 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 is 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 modified adjusted gross income is less than $75,000 for single filers, $150,000 for married filing jointly filers and $112,500 for head of household filers. The credit begins to phase out above those thresholds.
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.
Resources
The IRS mailed out letters in late June 2021 to those taxpayers who may be eligible to receive the advance payments. If you did not receive a letter or are unsure of your status, the IRS has provided an online portal which allows taxpayers to check their eligibility, update their existing information, or to opt-out of the advance payments altogether. If you are married filing jointly and wish to opt out, both spouses must unenroll individually. If you would like to utilize this tool, obtain more information, or reference the IRS Frequently Asked Questions.
If you do receive the advance credit payments, the IRS should mail a letter to you in January 2022 reflecting the total amount disbursed to you during 2021. Please keep this letter and include it with your tax information as it will be required to prepare your 2021 individual tax return.
If you have any questions or concerns regarding your specific situation, please contact our office.
