The Child Tax Credit (CTC) is a benefit designed to give American taxpayers a tax break for each of their qualifying dependent children. This tax credit decreases the tax liability of an eligible taxpayer with children on a dollar-for-dollar basis.
Child Tax Credit Expansion
The American Rescue Plan Act of 2021 (ARPA), signed into law in March of 2021, expands this tax benefit in several significant ways.
The expansion of the CTC may give you:
- An increased credit amount.
- Benefit for the credit even if you do not owe income tax or without earned income.
- Credit for children who turn age 17 in 2021.
- Up to 50% of your CTC credit in advance in 2021--BEFORE you file your 2021 tax return.
For the 2021 tax year only, families who claim the child tax credit receive $3,600 per qualifying child under age six, and up to $3,000 per qualifying child between the ages of 6 and 17. Previously, the CTC limit was up to $2,000 per qualifying child under 17. These payments are a substantial financial windfall for many American families.
Please note that this expansion only applies to the 2021 tax year, and the credit includes children turning 17 in 2021. In the future, President Biden has suggested making the enhanced credit available through 2025.
Most American families are eligible for some money under Child Tax Credit rules. However, the exact amount of credit you will receive depends on several factors, including filing status, annual income, and the number of dependents you have.
Who gets the full credit?
Your income will determine if you will be getting the maximum CTC amount. For example, married couples with children, who file a joint return and have an adjusted gross income less than $150,000 will receive 100% of the credit. The same is true for individual filers making less than $75,000 or heads of households who make less than $112,500.
The credit phases out but is not eliminated for married taxpayers who file a joint return of more than $150,000. The old CTC rules apply for those over the income limit, which means a credit of $2,000 per child under age 17 for married couples making $400,000 or more annually (or individual filers making less than $200,000). The treatment is similar for individual taxpayers making more than $75,000 or heads of households earning more than $112,500.
How Do I Get My Credit?
The process is similar to the stimulus checks of 2020 and 2021: you do not need to do anything right now to start receiving your payments. Here is how the advance monthly payment process works:
- To determine your family’s eligibility, the IRS uses the information you provided on your 2020 tax return. (If you haven’t filed your 2020 tax return yet, the IRS will take the information from your 2019 tax return).
- Next, the IRS will notify you of your potential eligibility and send you a notice with more information regarding the monthly payment.
- Payments will be distributed monthly on the 15th or the closest business day (if the 15th happens to fall on a holiday or weekend) from July through December 2021.
- You will receive an advance payment of up to 50% of the total credit.
Most families eligible for the CTC will receive their monthly payments through direct deposit if direct deposit information was provided on previous tax returns. If you did not provide direct deposit information to the IRS, you should receive paper checks or debit cards.
How can I speed up the process?
According to the IRS:
- Filing your tax returns electronically using direct deposit can speed up refunds and future advance CTC payments.
- Filing your 2020 tax returns ASAP will ensure you are eligible for the correct CTC amount -- as well as any other tax credits, like the Earned Income Tax Credit (EITC).
What if I haven’t filed my taxes?
An IRS online portal should be available around July 1st for non-filers to submit their information and receive the credit. In addition, the IRS plans to open an additional portal to make proposed changes much more straightforward.
What if I want a lump sum instead?
You can decline to receive monthly advance payments on your CTC. Suppose you choose to opt out of the monthly payments. In that case, you will still receive your full Child Tax Credit on your 2021 tax return. However, some families prefer to get a larger tax refund and base their financial planning and budgeting around that. They know their incomes will differ significantly from what they reported in 2020. The IRS plans to make their new online portal available for families choosing this option.
- Eligible families can receive $3,600 per qualifying child under the age of 6 and $3,000 per qualifying child between 6 and 17 years of age (the previous limit was $2,000 child who qualifies under the age of 17).
- For children under 6, payments could be as much as $300 per month, and for children older than 6, they could be $250 per month.
- Starting July 15th, 2021, and going through December, up to 50% of your total CTC for the year can be paid in advance through monthly payments.
- Even if you haven’t filed your taxes, have no earned income, or don’t owe any taxes, you can benefit from the expanded CTC.
- The expansion applies to the tax year 2021 ONLY but could be extended to future years (stay tuned!).