In a Nutshell
The U.S. will start rolling out payments for the expanded child tax credit for 2021 in July. Most eligible taxpayers simply need to file their 2020 tax return to receive this credit, but you can take steps to learn how much money you may qualify to receive.About 39 million American households will soon begin to receive advance monthly payments thanks to changes to the child tax credit for 2021.
The $1.9 trillion American Rescue Plan Act of 2021, which was signed into law by President Joe Biden in March, increased the maximum child tax credit for 2021 to $3,000 for children ages 6 to 17 and to $3,600 for children under 6.
The IRS is now sending letters to millions of American families who might qualify for the credit based on tax returns filed with the agency. Under the expanded tax benefit, eligible households will get up to $300 per child each month from July through December.
With the IRS gearing up to send its first advance payments on July 15, you may be wondering if you’re eligible for the enhanced child tax credit. Read on to learn more about the benefit and how to claim it if you can.
- What is the child tax credit for 2021?
- How much of the child tax credit will my family receive in 2021?
- Who qualifies for the child tax credit for 2021?
- Who counts as a qualifying child for 2021?
- How do I claim the child tax credit?
What is the child tax credit for 2021?
A tax credit is a tax break that can reduce your income tax liability on a dollar-for-dollar basis. Some federal income tax credits are refundable, which means they can give you a refund even if you didn’t owe any taxes in the first place.
The child tax credit used to be a partially refundable tax credit that you could claim for each qualifying child. But for 2021, the child tax credit has been expanded and made fully refundable. This is a big deal because it means eligible households can now qualify for the whole value of the child tax credit without owing federal income tax.
Other changes have also made the child tax credit more helpful in terms of amount and eligibility. Before this tax year, the child tax credit was capped at $2,000 per qualifying child — and 17-year-olds didn’t qualify. The refundable portion of the credit was also limited to $1,400 per child.
For 2021, eligible families claiming the child tax credit will receive …
- Up to $3,600 for each qualifying child under age 6
- Up to $3,000 for each qualifying child age 6 to 17
How much of the child tax credit will my family receive in 2021?
Under the new law, eligible households can receive a portion of the child tax credit this year as an advance on their 2021 taxes. The advance payments will amount to up to 50% of the total child tax credit. In other words, families will get half of the credit’s entire value in monthly payments from July through December (the other half can be claimed when they file for the 2021 tax year.
The IRS is scheduled to issue the payments on July 15, Aug. 13, Sept. 15, Oct. 15, Nov. 15 and Dec. 15. The time it takes for the money to land in your account or in your hands will vary depending on how you’re receiving it — by direct deposit, paper check or debit card.
For those who qualify, the payments will be …
- Up to $300 per month for each qualifying child under 6
- Up to $250 per month for each qualifying child age 6 to 17
This means that a family with three children ages 3, 6 and 9 could receive up to $800 each month through the end of 2021 ($300 for the 3-year-old and $250 each for the other two children).
Who qualifies for the child tax credit for 2021?
To qualify for the child tax credit, either you or your spouse — if married and filing a joint return — must have a Social Security number or individual taxpayer identification number (ITIN). The full credit is available to qualifying taxpayers with a modified adjusted gross income, or MAGI of …
- 50,000 or less for married taxpayers filing a joint return, as well as qualified widows and widowers
- $112,500 or less for heads of household
- $75,000 or less for singles
Above these income thresholds, the extra amount above the original $2,000 credit — $1,000 or $1,600 for each eligible child, depending on their age — is reduced by $50 for every extra $1,000 in modified AGI. (Not sure where to find your modified AGI? For most filers, it’s the amount on Line 11 of their 2020 Form 1040 or 1040-SR.)
Phase-out rules also apply to the remaining $2,000 credit, which starts diminishing when income reaches $200,000 for individuals and $400,000 for married couples.
If you’d like to figure out how much you might get from the expanded child tax credit, try the Washington Post’s free calculator.
Who counts as a qualifying child for 2021?
To qualify for the monthly payments, not only taxpayers but also their dependents must meet certain conditions. For example, the law requires that your child be a U.S. citizen, national or resident alien who will not turn 18 before Jan. 1, 2022.
Each qualifying child must also …
- Have a valid Social Security number
- Be related to you (by blood or by law)
- Live with you for more than half of the tax year
Also key:
- You must provide your child at least half of their support, which includes food and clothing as well as household, education and medical expenses.
- You must claim the child as a dependent on your tax return.
- The child can’t file a joint return for 2021 with his/her spouse if married (with certain exceptions).
Qualifying dependents could include eligible sons, daughters, stepchildren, foster children, brothers, sisters, stepbrothers, stepsisters, half-brothers, half-sisters or descendants of any of them. This could include, for example, eligible grandchildren, nieces or nephews. For more detail on this, see IRS Publication 501 on dependents.
How do I claim the child tax credit?
According to a White House statement, about 90% of families with children will automatically get this new tax benefit. Assuming they haven’t already, eligible families don’t need to do anything other than file their 2020 tax return, the IRS says.
The IRS says it will use 2019 federal returns to determine the correct payment amount for any taxpayers whose 2020 returns haven’t been filed or have yet to be processed.
The IRS has also created a portal for non-filers who don’t typically file tax returns so they can submit information to ensure that they receive child tax credit payments if they’re eligible.
Can I opt out of advance child tax credit payments?
Eligible taxpayers who don’t want the advance monthly payments and would prefer to save the full child tax credit until next year will be able to decline the payments. The IRS plans to create an online portal that will allow taxpayers to opt out of the advance payments.
What’s next?
As the U.S. recovers from the financial fallout of the COVID-19 pandemic, the IRS will soon begin issuing child tax credit payments to households covering more than 65 million children — or 88% of kids nationwide.
Although the American Rescue Plan expands the child tax credit for 2021 only, the Biden administration is aiming to keep the new benefit in place longer as a means to significantly reduce child poverty. President Biden has proposed extending the enhanced child tax benefit through 2025 in the American Families Plan, which was introduced in May.
For information on the child tax credit and advance payments, visit the IRS website’s page on Advance Child Tax Credit Payments in 2021.