Child Tax Credit Changes: Here’s What You Need to Know

The American Rescue Plan Act (ARPA) of 2021 expands the Child Tax Credit (CTC) for the 2021 tax year only. Beginning July 2021, the expanded CTC change will offer financial assistance sooner, rather than waiting until the 2022 tax filing season to receive the CTC benefit.

The Internal Revenue Service (IRS) is sending letters to families who may be eligible to receive the CTC payments starting July 15, 2021, based on tax returns filed with the agency. According to the IRS, here’s what you need to know about the changes.

What the Expanded Credit Means:

• The credit amounts will increase for many taxpayers.
• The credit for qualifying children is fully refundable, which means that taxpayers can benefit from the credit even if they don't have earned income or don't owe any income taxes.
• The credit will include children who turn age 17 in 2021.
• Taxpayers may receive part of their credit in 2021 before filing their 2021 tax return.

Increased Credit Amount for the Child Tax Credit:

• In the 2021 tax year, if your family is claiming the CTC, you’ll receive up to $3,000 per qualifying child between the ages of six and 17-years-old at the end of 2021.
• You will receive $3,600 per qualifying child under age six at the end of 2021. Under the prior law, the amount of the CTC was up to $2,000 per qualifying child under the age of 17 at the end of the year.

Here are the Income Limits:

The new maximum credit is available to taxpayers with a modified adjusted gross income (AGI) of:

• $75,000 or less for singles,
• $112,500 or less for heads of household, and
• $150,000 or less for married couples filing a joint return and qualified widows and widowers.

Here's What's Next - Eligible Families Should File Taxes Soon:

Eligible taxpayers do not need to take any action now other than to file your 2020 tax return if you haven’t done so. The IRS is sending letters to eligible families who may qualify for the CTC based on tax information records. Beginning July 15, 2021, eligible families will begin receiving advance payments either by direct deposit or check.

The IRS is urging 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 for which they’re eligible. If your 2020 return is not available, the IRS will determine the payment amount using your 2019 return.

If you don’t want to receive advance payments of the CTC, the IRS will provide an opportunity to decline receiving advance payments. The IRS is also providing a way for taxpayers to update information about changes in their income, filing status or the number of qualifying children.

For the most recent and detailed information about the Child Tax Credit, please visit the IRS website for Advance Child Tax Credit Payments in 2021.

Sources:

1. IRS sending letters to more than 36 million families who may qualify for monthly Child Tax Credits; payments start July 15, IRS.gov
2. Advance Child Tax Credit Payments in 2021, IRS.gov
3. FACT SHEET: The American Rescue Plan Will Deliver Immediate Economic Relief to Families, U.S. Dept. of the Treasury
4. IRS: Families Eligible for Expanded Child Tax Credit Should File Returns Soon, ABA