06.25.2021 By Lila Quintiliani and Amelia O’Rourke-Owens

What you need to know about the 2021 Child Tax Credit Changes

Under the American Rescue Plan Act of 2021, the new Child Tax Credit is a refundable credit worth up to $3,600 per qualifying child under 18. These changes are an increase from last year’s Child Tax Credit benefit of $2,000.

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Tax Refund Child Tax Credit

Qualifying families will receive half of their credit divided into 6 monthly payments deposited from July to December 2021. Families will receive the rest of the tax credit when they file their 2021 income taxes next year.

To be eligible for the credit, you must claim dependent children 17 and under who are a U.S. citizen, national, or resident alien and have a Social Security number. The child must be related to you and live with you at least six months of the year.

The benefit amount is determined by three factors per child: 1) the age of the child (under 6 or 6-17), 2) your filing status (single or married filing jointly), and 3) your modified adjusted gross income. The maximum benefit is $3,600 per child under age 6 and $3,000 for those older than 6 and under 18 years old; adults who file single are eligible for the maximum credit if their modified adjust gross income in 2021 is $75,000 or less, or $150,000 or less for married filing jointly adults. Once taxpayers reach these income thresholds, the benefit is gradually reduced to $2,000 per child.

The early distributions are automatically set to roll out starting in July 2021. The IRS will take the estimated credit you are due based on your 2020 taxes – for example, $3000 for a 16-year-old – and divide it in half, which is $1500. Then they will further divide it into 6 payments, which would be $250 ($1500/6). In this example, a family could expect to receive $250 per month from July to December and then the rest of the credit, $1500, in 2022, when they file their tax return next year.

If you didn’t file a return in 2020, then the IRS will look at 2019. For those who are not required to file taxes, the IRS has provided a portal for non-filers to submit information.

There are, however, some taxpayers who may choose to opt-out of the advance payments on the IRS website and file for the full payment on their next tax return. If you receive higher payments than you are eligible for on your 2021 taxes, you will have to pay back the IRS any amounts that you are overpaid.

Reasons to opt out of the payments – do any of these situations apply to you?

  • You usually owe money to the IRS
  • Your tax situation has drastically changed this year because you got a job or a higher paying job
  • You have children who are aging out of qualifying
  • You share custody of your children and have not worked out who is claiming the credit
  • You know you will be making a large payment in the spring and would rather get the entire credit at once

Reasons to take the advance payments: anything other than the above!

2021 Child Tax Credit Decision Tree

If you can check yes to all of these, then you might be eligible for the increased 2021 Child Tax Credit:

  • Child is under 2) a U.S. citizen, national or resident alien 3) has a Social Security number 4) you claim them as a dependent on your tax return 5) child is related to you and 6) lives with you at least six months of the year.

And you can receive up to $3,600 per child. Single filers making $75,000 or less (or married filing jointly of $150,000 or less) who have a child under 6 will receive the maximum benefit of $3,600, whereas these groups will receive a $3,000 benefit for a child 6 – 17. Single filers making $75,000 to $200,000 will get a credit of at least $2,000; married filing jointly will get at least $2,000 if they make $150,000 to $400,000. The exact benefit amount decreases in $50 increments for every $1,000 over the income thresholds.

If you don’t opt out, you will get half of your credit in 6 monthly payments July through December, and the other half when you file your 2021 taxes.

Decision Tree Download

 

The 2021 Child Tax Credit Benefit Amount Chart

The 2021 Child Tax Credit increases the potential credit up to $3600 per child and is being distributed in two parts: half July through December and the other half when you file your 2021 taxes.

If you can check yes to all of these, then you might be eligible for the benefit:

  • Child is under 2) a U.S. citizen, national or resident alien 3) has a Social Security number 4) you claim them as a dependent on your tax return 5) child is related to you and 6) lives with you at least six months of the year.

If you are Single Making:

Less than $75,000

  • Each child up to 5 years old on 12/31/2021 = Benefit of $3,600
  • Each child 6 - 17 years old on 12/31/2021 = Benefit of $3,000

$75,000 - $200,000

  • Each child up to 5 years old on 12/31/2021 = Benefit of $3,575 - $2,000
    • Gradually reduced in $50 increments by AGI over $75,000
  • Each child 6 - 17 years old on 12/31/2021 = Benefit of at least $2,000
    • Gradually reduced in $50 increments by AGI over $75,000

Over $200,000

  • Each child up to 5 years old on 12/31/2021 = For each $1,000 over $200,000, reduce $2,000 credit by $50
  • Each child 6 - 17 years old on 12/31/2021 = For each $1,000 over $200,000, reduce $2,000 credit by $50

If you are Married Filing Jointly, Making:

Less than $150,000

  • Each child up to 5 years old on 12/31/2021 = Benefit of $3,600
  • Each child 6 - 17 years old on 12/31/2021 = Benefit of $3,000

$150,000 - $400,000

  • Each child up to 5 years old on 12/31/2021 = Benefit of $3,575 - $2,000
    • Gradually reduced in $50 increments by AGI over $75,000
  • Each child 6 - 17 years old on 12/31/2021 = Benefit of at least $2,000
    • Gradually reduced in $50 increments by AGI over $75,000

Over $400,000

  • Each child up to 5 years old on 12/31/2021 = For each $1,000 over $200,000, reduce $2,000 credit by $50
  • Each child 6 - 17 years old on 12/31/2021 = For each $1,000 over $200,000, reduce $2,000 credit by $50

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